Lender of Last Resort, an International Perspective

Abstract

The name “lender of last resort” owes its origins to Sir Francis Barings, who in 1797 referred to the Bank of England as the “dernier resort” from which all banks could obtain liquidity in times of crisis.1The lender of last resort (“LOLR”) role of the central bank remains a major rationale for most central banks around the world, in both developed and developing countries.2While other central bank functions have recently come under fire (e.g. banking supervision), the importance of having the LOLR under the umbrella of the central bank is seldom contested.3It is the immediacy of the availability of central bank credit (the central bank being the ultimate supplier of high-powered money) that makes the LOLR particularly suitable to confront emergency situations.