Lender of Last Resort
From Open Risk Manual
Definition
Lender of Last Resort denotes a Central Bank’s role as a lender to whom banks may ask for liquidity when other sources are unavailable at or near usual terms and conditions.
At its discretion, the central bank can lend either to individual institutions or to the market as a whole. In order to minimise Moral Hazard, the central bank will maintain ambiguity as to the exact circumstances when such lending would be made. Such lending is sometimes referred to as emergency liquidity assistance.[1]
References
- ↑ BCBS, Supervisory Guidance on Dealing with Weak Banks, March 2002
