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lender of last resort

One of the main functions of a central bank. When financially troubled banks need cash and nobody else will lend to them, a central bank may do so, perhaps with strings attached, or even by taking control of the troubled bank, closing it or finding it a new owner. This role of the central bank makes credit creation easier by increasing confidence in the banking system and minimizing the risk of a bank run by reassuring depositors that their money is safe. However, it also creates a potential moral hazard: that banks will lend more recklessly because they know they will be bailed out if things go wrong.

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