What Is a Lender of Last Resort?
For banks it is usually the central bank, which lends cash when nobody else will.
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1.What is a lender of last resort?
For banks it is usually the central bank, which lends cash when nobody else will.
2.What does illiquid mean for a bank?
Illiquid means it cannot pay everyone right now; insolvent means assets are worth less than what it owes.
3.What was Bagehot's first rule in Lombard Street, 1873?
A high rate works like a heavy fine on unreasonable timidity, so only those who really need it borrow; the second rule is good collateral and large lending.
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Sources (4)
- EZB: What is a lender of last resort? (Erklaerseite, 26.08.2019)
- Bagehot, W. (1873): Lombard Street: A Description of the Money Market (Project Gutenberg Nr. 4359)
- Fischer, S. (2016): The Lender of Last Resort Function in the United States (Rede, Federal Reserve Board, 10.02.2016)
- Eigene Rechnung / Modellannahme (synthetische Banken)
Education only. Not financial advice.