Lender of Last Resort Law and Legal Definition

A lender of last resort is an institution willing to extend loan when no one else is ready to give the loan. Lender of last resort thus retains the public's confidence in the country's financial system. Usually, such institution is a country’s reserve financial institution or the central bank. The motive of a lender of last resort is to avoid bankruptcy of banks or other institutions which is viewed as systemically important or 'too big to fail'. Central banks often have their government's backing to make such loans. When central banks themselves get into bankruptcy, the International Monetary Fund (IMF) may act as a lender of last resort.