Subject 3. The Roles of Central Banks

Central banks all have similar roles:

  • Issue currency
  • The government's bank, and bank of the banks
  • Lender of last resort to the banking sector
  • Regulator and supervisor of the payments system
  • Set monetary policy
  • Regulate banking system

User Contributed Comments 4

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oneashok: Central bank is the lender of last resort to bankers... Is this the conventional function of Central Bank???
CFAToad: Oneashok, this may answer your question.

The central bank serves to ensure deposits are secured against shocks in the system. Without a lender of last resort, deposits would require greater interest rates, leading to less market liquidity and fewer financial services. Remember banks first and primary function is to take deposits and issue loans. If the deposit risk raises the cost of the bank to take a deposit, then the loan would require a higher rate as well. And this would apply to all banking services.

This is traditionally a function of a central bank. So yes to your question.
LCMilkbone: great in depth summary.
sshetty2: surprised no mention of FDIC here