The promotion of the safety, stability and soundness of the banking system is one of the main goals of the banking regulation and supervision. This requires a system which would help problem banks to gain funds necessary to meet their liquidity needs. The lender of last resort meets the requirements of such a system. The role of the lender of last resort is usually assumed by the central bank, although the assistance may come from a special government institution or directly from the state. The existence of lender of last resort is based on the conviction that a bank failure might have a negative impact on other banks. Emergency loans can be granted only to illiquid but solvent banks. In the article related problems are discussed - systemic risk, too-big-to-fail doctrine, crisis management, main criteria for the central bank aid, and others. Problems are then analyzed in the context of the Czech banking system in the period since 1990.

Keywords: bank, central bank, credit, crisis, lender of last resort, monetary policy, regulation, supervision


JEL: E5, G2

  Zbyněk Revenda - Czech Experience in Dealing with Problem Banks with Focus on the Lender of Last Resort Activities - plik pdf; (319 KB)