Skip to main content Skip to main content

Lender of Last Resort

Financial glossary · plain-language definition · Bonds Credit Macro

A central bank's role of supplying emergency cash to solvent banks during a panic, so a temporary shortage of cash does not destroy an otherwise-healthy institution. Banks lend out most of the deposits they take in, so none can repay every depositor at once — when frightened depositors all withdraw simultaneously (a bank run), even a sound bank can collapse. A lender of last resort breaks that dynamic by standing ready to lend against good collateral. The U.S. created this function with the Federal Reserve in 1913 after the Panic of 1907, when a private banker (J.P. Morgan) had to organize the rescue himself.

Related terms

10Y Treasury · Altman Z-Score · Asset Sensitivity · Basel III · Bond ETF · Bretton Woods

Open this term in the app → — no account needed; browse the full glossary while you research.

Definitions are for educational purposes only. Not financial advice. Oxford Ledge does not guarantee accuracy or completeness of information.