lender of last resort

A lender of last resort is typically a central bank or financial institution that offers emergency loans to financial institutions that are struggling to meet their short-term liabilities. This role is crucial during times of financial distress when banks face liquidity shortages but are otherwise solvent. By providing these funds, the lender helps stabilize the banking system, prevents a loss of public confidence, and reduces the risk of broader economic crises. Essentially, it acts as a safety net to ensure that financial institutions can operate smoothly even in challenging circumstances.