Paul Krugman wrote on his blog last Monday: « The markets have concluded that the European Central Bank (ECB) will not, cannot, let France go bankrupt; without France, there is no euro. So, for France, the ECB clearly wants to act as lender of last resort by providing liquidity. »
A lender of last resort operation aims to provide liquidity to a banking institution that can no longer find counterparties on the interbank market, or to a government that can no longer finance itself at reasonable rates.
A market maker operation aims to create liquidity in a specific financial market by compensating for the lack of counterparties. The aim is to ensure that the economy is financed by the financial markets by intervening in a market whose proper functioning is vital to the economy.
In practice, it is often difficult to distinguish between the two in certain cases.
NB: for more details on the PDR, see our article http://bs-initiative.org/index.php/notes-de-recherche/item/77-preteur-de-dernier-ressort-ce-que-nous-dit-goodhart
A.J.
