Central Bank Tools and Liquidity Shortages

The current financial crisis has brought into sharper relief the fundamental role of central banks as lender of last resort and raises the question of whether the tools they have available are sufficient for confronting the challenges posed by modern liquidity crises. This paper attempts to provide a practical conceptual overview of these issues highlighting, in particular, the need to distinguish between different types of liquidity shortages before any general set of principles can be established with respect to how the lender of last resort function should be conducted