lender of last resort

Syllable breakdown

Dictionary meaning

the role of a central bank in providing emergency liquidity to solvent but illiquid financial institutions that cannot obtain funding from private markets during a crisis; the classic formulation by Walter Bagehot in Lombard Street prescribes lending freely at a penalty rate against good collateral; the function is essential for preventing bank runs from cascading into systemic crises by assuring markets that solvent institutions will not be forced into failure by temporary liquidity shortages