CENTRALNA BANKA KAO ZAJMODAVAC U POSLEDNjOJ INSTANCI

Abstract

Being the lender of last resort is one of the central bank's most important functions. In this paper, the author explains the origin, concept, importance of this function, as well as how the central bank acts as a lender of last resort, when it should act, ways of acting and what would happen if it did not perform this important function. As banks are subject to illiquidity, the paper pays attention to the concept of liquidity and explains the situations when banks become illiquid. The action of the central bank as a lender of last resort is socially beneficial because it stops the crisis, i.e. prevents its deepening and preserves, i.e. restores financial stability. Regardless of that, moral hazard can also occur, so this issue also found a place in this paper. Although it is desirable to have rules for handling crisis situations, it often happens that the severity of the crisis determines the way the central bank intervenes, and that there is no universal recipe for handling.