Lender of last resort

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Lender of last resort - a central bank that lends to a commercial bank the financing of a secured commercial debt (usually bills or government bonds) in connection with the outflow of commercial bank deposits.

This is an important function of the central bank from the point of view of people entrusting their savings to banks. In order to secure its current operation, the commercial bank acquires funds from other banks in the interbank market. In situations where financial institutions do not trust, banks using this funding may have trouble getting funds. In the event of a sudden outflow of the deposit, the commercial bank is unable to obtain cash to pay out to all customers waiting for them. This is also due to the fact that it can not quickly recover funds from granted loans. The central bank in this situation lends money to banks. Bibliography

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