If the lender of last resort function of the government is to be effective in working to minimize a crisis, it must be:
A) reserved only for those banks that are most deserving.
B) used on a limited basis.
C) credible, with banks knowing they can get loans quickly.
D) only available during economic downturns.

Question

Quizplus · Accepted Answer

The credibility of the lender of the last resort function is important because if banks do not believe they can get loans quickly, they may not seek assistance and the crisis can worsen. Therefore, the option of a lender of last resort must be credible for it to be effective.

If the Lender of Last Resort Function of the Government