A Research On The Lender Of Last Resort And Its Application In China

There is a considerable agreement on the important of finance in impelling the development of economy. But at the same time, financial crises have plagued many of these economies. In response to these crises, proposals have been made in a number of countries to have a lender of last resort that is able to freely print money and lend to the banking system.The lender of last resort is a bank policy for central bank in providing emergent assistance to unsound bank to take precautions against and reduce financial risks and prevent systemic risk. Two of the important roles of a lender of last resort are the provision of an elastic currency and improvement of structure of deposit agreement, which can effectively avoid the banking panics. However, it can also bring serious moral hazard. To alleviate the menace of moral hazard, we should describe all the factors in practicing the lender of last resort, such as principle, object, and occasion. We also should describe the mode, term, interest rate of emergent assistance and exit of central bank, especially the concerted development with all the systems in the economy. In China, there are many unresolved problems in the practice of lender of last resort. To prevent increasingly obvious financial risks from turning into financial crises, excellent and concerted institution of lender of last resort should be founded.This paper discusses the form and evolution of the lender of last resort by learning institutional evolvement of central bank, and then considers its rationality in theory. At last, on the analysis of functional characteristics as well as concerted operational system of implementation, we propose the policy suggestion on the lender of last resort in accordance with the current situation of implementation in China.