Study On The Legal Issues Of Lender Of Last Resort

As we all know, finance is the core of modern economy. Stabilization of finance assures us of the healthy development of the nation and long-term peace of the society. Along with the evolution of finance, there are heavy risks, for example, some banks have gone bankrupt, and some security companies have disappeared.There is a considerable agreement on the importance 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 or other organizations in providing emerging 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, legal value, and object.This paper discusses the form and evolution of last resort by learning institutional evolvement of LOLR, and then considers its rationality in theory. And the historic review of LOLR illustrates the relationship with the central bank and the finance macro-control. This paper takes the Bank of England and the Federal Reserve Board as an example to analyzing the evolution of LOLR as an important function of central bank. This paper answers the basic problems, for example, the four principles of LOLR, the right and obligation of LOLR, and the function of LOLR. 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. At last, on the analysis of the functional characteristics as well as concerted the 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.