BANKING AFFAIRS

Detailed explanation-1: -As a Banker to Banks, the Reserve Bank also acts as the ‘lender of the last resort’. It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank.

Detailed explanation-2: -The central bank is referred to as the lender of last resort as it saves banks from possible failure and the banking system from a possible breakdown. In case commercial banks fail to meet their financial requirements from other sources, they can approach the central bank for a loan as a last resort.

Detailed explanation-3: -A lender of last resort is the provider of liquidity to financial institutions that are experiencing financial difficulties. In most developing and developed countries, the lender of last resort is the country’s central bank.