| I. The structure and the contentIt is necessary to give a clear definition to the term"LOLR"(lender of last resort) in the first place. Frexias specified the limits of the LOLR theory in a documentary summary in 1999: The term"LOLR"is to mean the discretionary provision of liquidity to a financial institution (or the market as a whole) by the central bank in reaction to an adverse shock which cause an abnormal increase in demand for liquidity which can't be met from an alternative source. The thesis continues to use his viewpoints by defining LOLR as follows: the last provision of liquidity to a financial institution or the market by the central market to maintain the stability of the financial system in a situation of liquidity difficulty where there is no alternative means to meet the demands. This definition contains the following implications: firstly, the LOLR function of the central bank is a short-term support of liquidity and the connotation lies in that the financial institutions are solvent and the lack of liquidity is temporary. Secondly, the LOLR aims at maintaining the stability of the market as a whole. When insolvent financial institutions poses a threat to the systemic stability, to perform its duty, the central bank should give support to those insolvent banks while during this process the central bank itself should ask for the government's guarantee. In order to prevent the abuse of this right, the sound judgment of the systemic importance is especially significant. Thirdly, the lack of liquidity of the financial market usually happens in the process of credit decrease in the financial crisis. The assistance strategy of the central bank varies between the systemic crisis and the normal condition. Fourthly, the central market uses LOLR as the"last"means on the premise that an alternative source has been utilized or an alternative source cannot meet the demand. Fifthly, LOLR by the central bank plays an important role in maintaining financial stability...
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