BANKING AFFAIRS

Detailed explanation-1: -As a Banker to Banks, the Reserve Bank also acts as the ‘lender of the last resort’.

Detailed explanation-2: -The central bank is called the lender of last resort because it is capable of lending–and to prevent failures of solvent banks must lend–in periods when no other lender is either capable of lending or willing to lend in sufficient volume to prevent or end a financial panic.

Detailed explanation-3: -In India, RBI is the lender of last resort.

Detailed explanation-4: -In most developing and developed countries, the lender of last resort is the country’s central bank. The responsibility of the central bank is to prevent bank runs or panics from spreading to other banks due to a lack of liquidity.

Detailed explanation-5: -Central banks lend money to commercial banks in times of crisis so that they do not collapse; this is why a central bank is called a lender of last resort. And this is one of the reasons central banks matter. At the time of the 1907 panic, the U.S. economic system lacked a central bank.