A person or organisation which is ready to help the individual or organisation who is in need of immediate financial help to come out of the financial struggles is the lender of the last resort. It means that if a commercial bank fails to get financial accommodation from anywhere, it approaches the Reserve Bank as a last resort. Reserve Bank advances loan to such banks against approved securities. By offering loan to the commercial bank in situations of emergency, the Reserve Bank ensures that :
(i) The banking system of the country does not suffer from any set back.
(ii) Money market remains stable.
It preserves the stability of the banking and financialsystem by protecting individual's deposited funds and preventing panic-ridden withdrawls from banks with temporary limited liquidity. For more than century and a half, central banks have been trying to avoid great depressions by acting a lenders of lastresort in times of financial crisis.