Function of Central Banks as Lender of Last Resort (LOLR) - Essay Example

Only on StudentShare

Extract of sample
Function of Central Banks as Lender of Last Resort (LOLR)

The crisis saw the fall of stock markets across the world and the collapse of massive financial institutions from some of the richest nations (Dorn 2010). In a bid to salvage the situation, governments, through their central banks as LOLR, came up with rescue packages with an aim of bailing out the countries’ financial systems (Brunnermeier 2009). The crisis resulted from the US sub-prime mortgage market collapse as well as the negation of the real estate boom according to (Brunnermeier 2009). Many experts blame the current economic models for the crisis that affected lives across the globe. Advantages of LOLR During a financial crisis that hit the financial sectors, it is pointed out that many banks tend to become insolvent and sometimes collapse. In order for such a situation not to come into play, the central banks always come in an act as lender of last resort. In this case, it provides funding to increase the liquidity position of these banks. This has helped many banks escape receivership during a financial crisis (Schinasi, Teixeira and IMF. Finance Dep. 2006 p.11). Grauwe (2011) notes that when a bank is faced with solvency problems, this in most cases can trigger deposit holders of other banks to move out their money/deposits commonly referred to as bank run. It also causes banks to start selling off their assets lowering their prices. ...
Download paper


Function of Central Banks as Lender of Last Resort (LOLR) Financial stability policies in the financial sectors are considered to include supervision, regulation and crisis management. All this functions are performed by the central banks which crucially depend on the central bank’s function of lender of last resort (LOLR)…
Author : dannyhickle

Related Essays

Finance Essay on Commercial and Investment Banking
10 pages (2510 words) Essay
Finance and Accounting Research Paper: Monetry - Central Bank
23 pages (5773 words) Research Paper
Banks and Stocks
3 pages (753 words) Essay
Mega Banks vs. Community Banks
4 pages (1004 words) Essay
Company Analysis Paper (Starwoods Hotel and Resort)
4 pages (1004 words) Research Paper
Central bank
4 pages (1004 words) Assignment
GCC central Bank
6 pages (1506 words) Assignment
GCC central bank
3 pages (753 words) Essay
Management accounting
5 pages (1255 words) Essay
Got a tricky question? Receive an answer from students like you! Try us!