What is a lender of last resort? The central bank's emergency role
By SendPay Business · · 2 min read
- 1Name it and pick your colours
- 2Choose what it does
- 3Launch when you are ready
A lender of last resort is an institution, usually a country's central bank, that lends money to banks when nobody else will. Its job is to stop a bank that is short of cash from collapsing, and to stop that panic spreading to other banks.
Why it is needed
Banks lend out most of the money customers deposit, so they never hold enough cash to repay everyone at once. If depositors panic and rush to withdraw, even a healthy bank can run out of cash. A lender of last resort fills that gap so the bank can keep paying out.
The classic rule
In the 1870s the writer Walter Bagehot argued that in a panic a central bank should lend freely, to solid banks, against good collateral, at a high interest rate. Central banks still refer to this idea today, though they apply it in different ways.
Try it
Name your platform and watch it come to life
Type a name, tap a colour and pick what it does. The phone changes as you go.
Colour
What it does
Design and preview your whole platform free, then launch when you are ready.
The worries
- Moral hazard: banks may take more risk if they expect to be rescued.
- Telling the difference between a bank short of cash and a bank that is actually broke is hard in a crisis.
- Emergency lending can put public money at risk.
Where SendPay fits
SendPay isn't a bank. SendPay platforms give your customers GBP, EUR and USD accounts, transfers and branded Visa cards under your own brand, powered by licensed partners. SendPay doesn't offer lending.
How it works
Money on its way- 1Pick who to pay and type the amount
- 2Tap send and it is on its way
- 3It lands in their account
Why sign up
Create your free SendPay account
It's all about creating your own financial platform with ease. Start with a free account today.
- 🪪A free business accountOpen it in about a minute with your business name, email, password and mobile. No card and no documents to start.
- 💳Get paid from day oneTake card payments, and share your own payment link and invoices so customers pay in a click.
- 🌐A free business websiteFree to build, free to publish and free to keep, with unlimited visits.
- 🚀Your own financial platformDesign and preview your whole platform free, then launch when you are ready.
SendPay Business is a technology company, not a bank. Accounts, cards and payments are powered by licensed partners.
Questions people ask
How much of its deposits could a bank pay out?
Work out liquidity and loan-to-deposit ratios.
Bank liquidity calculator →What is fractional reserve banking?
Banks keeping only part of deposits as cash and lending out the rest.
Fractional reserve banking →What is a central bank base rate?
The interest rate a central bank sets, which shapes other rates.
Base rates →Read next
Spotted a mistake or something out of date? and we'll fix it. How our guides are made
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.