OMTEX CLASSES: Central bank acts as a lender of the last resort of commercial banks

Central bank acts as a lender of the last resort of commercial banks

Central bank acts as a lender of the last resort of commercial banks. This is because the commercial bank operates by the basis of low cash reserve system. If there is great demand for cash by the depositors and when commercial banks are in financial difficulties. The Central bank acts as a lender of last resort to commercial banks. Whenever any commercial bank faces liquidity problems, the central bank provides funds to overcome the crisis.