top of page

Central Bank Lending to Troubled Commercial Banks

Question

Discuss whether a central bank should lend to commercial banks which get into financial difficulties.

Category:

Macroeconomic Factors and Policies

Frequently asked question

Preview Answer

I. 🍃Introduction
- Explanation of the topic
- Brief overview of the arguments for and against central banks being lenders of last resort

II. Arguments for central banks being lenders of last resort (up to ➡️5 marks)
- Function of a central bank as a lender of last resort
- Importance of lending to commercial banks to prevent collapse
- Potential consequences of not lending (loss of money, bank runs, reduced investment, economic decline)
- Importance of commercial banks carrying out their function

III. Arguments against central banks being lenders of last resort (up to ➡️5 marks)
- Potential encouragement of risky behavior by banks
- Perception of being "too big to fail"
- Opportunity cost of using funds for lending to established banks instead of new, expanding ones

IV. 👉Conclusion
- Summary of arguments for and against central banks being lenders of last resort
- Personal opinion on the matter

Ops... End of preview!

Already purchased Economics Study Pack subscription? Amazing! Click below

What's included 
 
✔️Full essay
✔️Tips
✔️Diagrams
✔️Marking Schemes
✔️Examiner's report

Economics Study Help
bottom of page