Number: RS21986
Title: Federal Reserve: Lender of Last Resort Functions
Authors: Marc Labonte, Government and Finance Division 
Abstract: The Federal Reserve (Fed), the nations central bank, has many duties. Its primary duty is the execution of monetary policy to fulfill its mandate to promote stable economic growth and low and stable price inflation. This report focuses on one particular duty of the Federal Reserve: to act as a lender of last resort to the nations financial system. Since generalized financial panics threaten economic stability, the Fed may at times be required to take actions to prevent panic to fulfill its mandate. The lender of last resort function can be carried out by directly lending to specific banks through the discount window or more generally by lending to the financial sector as a whole through open market operations (the sale and purchase of U.S. Treasury bonds to alter credit conditions). This report concludes by describing some recent instances, including September 11, where the Fed acted in accordance with its lender of last resort functions.
Pages: 6
Date: April 17, 2007