Lender of Last Resort

A central banking function in which the central bank stands willing to lend to any temporarily illiquid but otherwise solvent banking institution to prevent its illiquid position from leading to a general loss of confidence in that institution.

For instance, in the U.S. the Federal Reserve acts as the lender of last resort to institutions that do not have any other means of borrowing and whose failure to obtain credit would dramatically affect the economy.

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