why is central bank called the lender of last resort?

Asked by manishaghosh026 | 13th May, 2022, 02:54: AM

Expert Answer:

When a commercial bank faces financial crisis and fails to obtain funds from other sources, then the central bank plays the vital role of 'lender of last resort' and provides them with the financial assistance in the form of credit. This role of the central bank saves the commercial bank from bankruptcy. Thus, the central bank plays the role of guarantor for the commercial banks and maintains a sound and healthy banking system in the economy.

Answered by Sheetal Kolte | 13th May, 2022, 11:38: AM

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