Lender of last resort

Central banks act as lenders of last resort or PUI of commercial banks and other financial institutions in times of crisis when they provide the necessary money. Beginning

At any point in time, banks may be affected by a liquidity crisis as they use a portion of their liquid assets to finance illiquid jobs. As a result, they do not have sufficient liquidity to cope with the withdrawal of a significant part of their liquid liabilities (to deal with a banking panic), even if they are solvent. Thus, in order for banks to continue to finance illiquid assets, an IUP is required to ensure that they can cope with unforeseen withdrawals, thus eliminating the risk of withdrawal (since short-term bank lenders know that run the risk of not being reimbursed their money).

The role of PUI is played by central banks, which can lend additional funds to banks by taking their assets as collateral. Application Since the beginning of the subprime crisis, the Bank of England had to (temporarily) nationalize the Northern Rock mortgage bank in February 2008, and in March 2008 the FED had to resort to the help of the fifth US investment bank Bear Stearns. It should be noted that this is the first time that the monetary authorities of the United States have rescued an investment bank.

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