Final answer:
The role of the lender of last resort is fulfilled by central banks, like the Federal Reserve, and at an international level by the IMF. They provide short-term loans to prevent financial crises from spreading and to maintain confidence in the financial system.
Step-by-step explanation:
The lender of last resort is a function typically played by a central bank, such as the Federal Reserve (the Fed) in the United States. In the context of global finance, the International Monetary Fund (IMF) is often referred to as the lender of last resort for countries facing dire economic circumstances. Central banks and the IMF provide this critical support by offering short-term loans during times of financial panic or stress, helping to prevent bank runs from causing solvent banks to fail and mitigating the spread of financial contagion.
These institutions serve to reinforce stability within the financial system, notably by ensuring that deposit insurance is effective, that there is sufficient bank supervision, and ultimately, to reassure both banks and customers that support is available in the face of severe liquidity issues, thereby preventing the possible onset or deepening of a recession.