Lender of Last Resort
A major function of a central bank is for it to act as “lender of last resort.” During a financial crisis, the central bank is usually expected to lend to banks that are illiquid but not insolvent. Loans from the central bank help at-risk banks avoid bankruptcy during a bank run by increasing their reserve levels. Absent a central bank, the role of lender of last resort has filled by voluntary clearing house associations.
Gregory Rehmke - Money and Inflation
MAY 08, 2009 by SHELDON RICHMAN
The Federal Reserve System does more than conjure up money from thin air. (That would be enough!) The Fed is also regulator/protector of the American banking industry.
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