who is the lender of last resort in the us
Lender of last resort A lender of last resort (LOLR) is the lender (provider of liquidity), which since the beginning of the 20th century has usually been a central bank, that supplies liquidity to a financial institution or to the financial market in general when it is lacking. The goal is to prevent financial panics and bank runs spreading from one bank to the next from a lack of liquidity. Different definitions of the lender of last resort exist in the literature. A comprehensive one is the following: "the discretionary provision of liquidity to a financial institution (or the market as a whole) by the central bank in reaction to an adverse shock which causes an abnormal increase in demand for liquidity which cannot be met from an alternative source".[1]
Financial crisis of 2007–2008 The bursting of the US housing bubble, which peaked at the end of 2006,[23][24] caused the values of securities tied to US real estate pricing to plummet, damaging financial institutions globally.[25][26] The financial crisis was triggered by a complex interplay of policies that encouraged home ownership, providing easier access to loans for subprime borrowers; overvaluation of bundled subprime mortgages based on the theory that housing prices would continue to escalate; questionable trading practices on behalf of both buyers and sellers; compensation structures that prioritize short-term deal flow over long-term value creation; and a lack of adequate capital holdings from banks and insurance companies to back the financial commitments they were making.[27][28][29][30] Questions regarding bank solvency, declines in credit availability, and damaged investor confidence affected global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[31] Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts.[32] In the US, Congress passed the American Recovery and Reinvestment Act of 2009.