The Fed's role as lender of last resort

Question

Quizplus · Accepted Answer

The Fed's role as lender of last resort has been expanded over time to include ensuring general financial stability, especially in times of crisis. This was demonstrated during the 2008 financial crisis when the Fed provided emergency funding to banks and other financial institutions to prevent a complete collapse of the financial system. The FDIC does play a role in ensuring the stability of individual banks, but the Fed's role as lender of last resort extends beyond that. Option A is incorrect as the FDIC's role is related to insuring deposits and resolving failed banks, not providing emergency lending. Option C is incorrect as the Banking Reform Act of 1995 did not eliminate the Fed's role as lender of last resort. Option D is incorrect as the role of the Fed has evolved over time in response to changing economic conditions.

The Fed's Role as Lender of Last Resort