Introduction Ladies and gentlemen, Since tensions emerged in the interbank market in August 2007, central banks have been at the forefront – and centre – of the response to the financial crisis.
Such prominence is directly linked to their ability to create liquidity for the entire financial system as well as solvent individual banks experiencing funding difficulties and to a central bank’s function as lender of last resort (LOLR). This distinctive role was first identified more than two centuries ago by Henry Thornton (1802) and elaborated on 70 years later by Walter Bagehot (1873).