Asked by Edith Anderson on Apr 27, 2024
Verified
What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?
Lender of Last Resort
An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are facing financial difficulty or are considered highly risky.
Fed
Short for the Federal Reserve System, which is the central banking system of the United States responsible for monetary policy.
- Identify the role and actions of the Federal Reserve as a lender of last resort and the importance of the Federal Deposit Insurance Corporation (FDIC) in maintaining financial stability.
Verified Answer
EW
Elite Warrior007Apr 27, 2024
Final Answer :
A "lender of last resort" is a lender to those who cannot borrow anywhere else. The Fed might loan funds to a solvent bank that is experiencing a bank run and so doesn't currently have enough cash on hand to meet depositors' demands.
Learning Objectives
- Identify the role and actions of the Federal Reserve as a lender of last resort and the importance of the Federal Deposit Insurance Corporation (FDIC) in maintaining financial stability.