economics medium Fill in the Blank

When commercial banks face severe liquidity shortages and cannot borrow from the inter-bank market, they approach the RBI as the ___.

  1. lender of last resort
  2. Washington
  3. substitutes
  4. arbitrage (or resale)

Answer: lender of last resort

This critical function ensures the stability of the financial system. By providing emergency liquidity assistance to solvent but illiquid banks, the RBI prevents bank runs and systemic contagion that could otherwise trigger a broader financial crisis.

Topic Banking - Functions
Exam Relevance Banking, UPSC Prelims, SSC