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Functions of the Bank of Indonesia as Lender ofLast Resort for Banks\' Safety

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  • Zulfi Diane Zaini

Abstract

Bank of Indonesia in its function as Lender of the Last Resort (LoLR), has an obligation to extend credit to banks to overcome short-term funding difficulties. Such credits shall be bound by high quality and easily disbursed collateral whose value is at least the amount of credit received. Lender of the Lasr Resort facility provision was then extended as support for banking institutions from the fall despite the unhealthy institutions, in order to avoid systemic banking collapse. The problem in this research is how the application of Bank Indonesia function as LoLR in Banking system in Indonesia. The approach of this study are using normative juridical to examine the rules, norms, rules, related to the aim of this study. The approach was made literature study (library research), to collect a wide range of legislation, theories and literature are closely related to the matter to be examined. further analysis of the data used is qualitative juridical. Based on the results of the research shows that, LoLR is a very important basic element for the central bank in dealing with distress lending and in crisis management. The banking sector has a dominant role in the financial system, hence failure in the financial sector can lead to financial instability and disrupt the economy. In an effort to prevent such failures, effective oversight and banking policy systems must be enforced, and market discipline through oversight and policy enforcement and law enforcement must be firmly and effectively implemented.

Suggested Citation

  • Zulfi Diane Zaini, 2018. "Functions of the Bank of Indonesia as Lender ofLast Resort for Banks\' Safety," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 607-621.
    • Handle: RePEc:ers:journl:v:xxi:y:2018:i:3:p:607-621
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    File URL: https://www.ersj.eu/dmdocuments/2018_XXI_3_49.pdf
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