Lender of last resort and Notional amount: Difference between pages

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imported>Doug Williamson
m (Spacing; correct typo - apostrophe position; expand reference to financial system to add "as a whole".)
 
imported>Doug Williamson
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A concession given to a select number of financial institutions whereby their central bank agrees to provide them with funds if they should get into [[liquidity]] difficulties.
The principal amount (for example in an interest rate swap, forward rate agreement, cap or floor) or each of the amounts (in a cross currency interest rate swap) to which interest rates are applied in order to calculate periodic payment obligations.


The primary purpose of the activity by the central bank is stability of the financial system as a whole.


Secondarily, the purpose is stability of the particular institution affected.
Also known as ''notional principal'', ''notional value'', or ''nominal'' amount, principal or value.




Central banks generally avoid risk taking behaviour.
== See also ==
* [[AANA]]
* [[Cap]]
* [[Currency swap]]
* [[Derivative]]
* [[Floor]]
* [[Forward rate agreement]]
* [[Interest rate swap]]
* [[Nominal]]


Accordingly, in principle, the central banks only lend against good security ([[collateral]]) and with a conservative [[haircut]].
[[Category:Accounting,_tax_and_regulation]]
 
[[Category:The_business_context]]
In practice, liquidity shortage may force a bank to seek to dispose of assets, even at significant losses that erode its capital.
[[Category:Financial_products_and_markets]]
 
Eventually the central bank may lend against less-good collateral and with less than its desired haircut on collateral valuation - until it won't, when the game is over and the story becomes one of [[resolution]].
 
 
Lender of last resort activity is more recently often referred to as emergency liquidity assistance.
 
The European Central Bank's scheme is called Emergency Liquidity Assistance (ELA), for example.
 
 
== See also ==
* [[Central bank]]

Latest revision as of 22:56, 18 August 2020

The principal amount (for example in an interest rate swap, forward rate agreement, cap or floor) or each of the amounts (in a cross currency interest rate swap) to which interest rates are applied in order to calculate periodic payment obligations.


Also known as notional principal, notional value, or nominal amount, principal or value.


See also

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