Which bank is referred to as ‘The lender of last resort’?
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. Central Bank.
A) A lender of last resort is an institution, usually a country’s central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.
B) The lender of last resort functions to protect individuals who have deposited funds and to prevent customers from withdrawing out of panic from banks with temporarily limited liquidity. Commercial banks usually try not to borrow from the lender of last resort because such action indicates that the bank is experiencing a financial crisis.
C) As a Banker to Banks, the Reserve Bank also acts as the 'lender of the last resort'.