This chapter documents the extraordinary journey that has resulted in an ever-expanding role for the Lender of Last Resort (LOLR). Since the global financial crisis, major episodes of financial instability have redefined the functions of the modern LOLR. These events have placed the LOLR at the intersection of monetary and fiscal policy, supervision, and regulation of the banking industry, and have extended the LOLR role to the bailout of non-bank institutions, including sovereign countries, and even pension funds. The size and the scope of these interventions have transformed the LOLR from emergency liquidity assistance for distressed banks to an all-encompassing set of measures that only tangentially hinge upon liquidity provision and that more often venture into the territory of broad support to a variety of financial markets and operators.
The Lender of Last Resort in Today's World
Bruno Maria Parigi;
2025
Abstract
This chapter documents the extraordinary journey that has resulted in an ever-expanding role for the Lender of Last Resort (LOLR). Since the global financial crisis, major episodes of financial instability have redefined the functions of the modern LOLR. These events have placed the LOLR at the intersection of monetary and fiscal policy, supervision, and regulation of the banking industry, and have extended the LOLR role to the bailout of non-bank institutions, including sovereign countries, and even pension funds. The size and the scope of these interventions have transformed the LOLR from emergency liquidity assistance for distressed banks to an all-encompassing set of measures that only tangentially hinge upon liquidity provision and that more often venture into the territory of broad support to a variety of financial markets and operators.
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