The function of the Central Bank as the lender of last resort means that when all other sources fail,

Answer Details

The function of the Central Bank as the lender of last resort means that when all other sources fail, commercial banks can raise loans from the Central Bank. This is because commercial banks sometimes face temporary liquidity shortages or runs by depositors, which can threaten their solvency. As a result, the Central Bank acts as the lender of last resort by providing emergency loans to these banks to meet their short-term liquidity needs and avoid a systemic crisis. The Central Bank charges a high interest rate for such loans to discourage commercial banks from making a habit of borrowing from the Central Bank, and to encourage them to maintain adequate liquidity levels.