Question

Why is the Fed often referred to as a “lender of last resort,” or the last lender to turn to in a crisis?

It lends consumers money when other banks will not.
It keeps all failing banks afloat to avoid economic disruption.
It helps finance and stabilize central banks internationally.
It offers banks financial protection to keep consumers from panicking.

Answer 1

It offers banks financial protection to keep consumers from panicking.

Explanation: As lender of last resort the Fed supplies emergency liquidity to banks (via the discount window and other facilities) when private funding dries up, helping solvent but illiquid banks meet withdrawals and preventing runs and broader panic. It’s not about lending to consumers or propping up all failing (insolvent) banks.