In a severe financial crisis, if the public fears that a bank's assets aren't worth enough to cover its debts, a lender of last resort is not likely to be able to prevent bankruptcy of the bank.

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In a severe financial crisis where public confidence is low, even a lender of last resort may not be able to prevent a bank from going bankrupt if the assets of the bank are not valued enough to cover its debts. This was evident during the 2008 financial crisis when some banks still went bankrupt despite the intervention of the Federal Reserve and other central banks as lenders of last resort.

In a Severe Financial Crisis, If the Public Fears That