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When setting restrictions on central bank lending, it is important to take into account the risk that the central bank may not be able to serve effectively as a lender of last resort once a liquidity crisis gets going and that the crisis may develop into a much more costly economic and financial crisis.
If the PBOC is to prioritise financial stability and commit to fulfilling its role as a lender of last resort, it may be preferable to accept that devaluation in inevitable -- before the country's foreign-exchange reserves are depleted.
Given the aforementioned absence of a lender of last resort, this exposes the banking system to funding risks during periods of global risk aversion.
Throughout its history, the Fed also has strayed consistently from the classic lender of last resort prescription by lending directly to specific institutions, especially those with questionable financial strength.
There would be no need for the central bank to act as a lender of last resort, nor would it be necessary for the state to provide a backstop for deposit insurance.
The central bank is currently developing a lender of last resort framework for the entire banking sector which is expected by December of this year, with a Shariah-compliant equivalent to be developed afterwards, Asaduzzaman said.
The second area of policy tools involves measures the central bank can use to serve in its function as a lender of last resort.
As Mervin King said many times, if banks are too big to fail, they are too big, and if our Government is lender of last resort and feels it cannot let them go bust, then we should have a view about bonuses.
As the cost of living soars many people in our communities are struggling with day to day living and are turning to payday loan companies as a lender of last resort to keep their families going in these most difficult times.
He said: "This is not about people on breadlines being desperate and us being a lender of last resort.
The designation from the World Bank, often a lender of last resort to cash-strapped governments, means Iran may find it even harder to get money from commercial creditors.
The report also outlined the need for regulators to develop an Islamic lender of last resort as a safety net to promote stability in the Islamic finance industry.