Amid the news of three banks in the United States collapsing in the last one week, the Nepal Rastra Bank (NRB) on Sunday called Lender of Last Resort Policy 2023. The NRB has issued a Lender of Last Resort Policy whereby banks and financial institutions (BFIs) can take such a facility from the central bank paying an additional two percent penal rate to the prevailing bank rate. According to NRB Executive Director Prakash Kumar Shrestha, the policy has been amended to amend the regulation which was introduced in 2011. "The issuance of the policy has nothing to do with the collapse of the US banks," said Shrestha, "It's just a coincidence. The NRB board had already endorsed the policy in the last week of February."

A lender of last resort facility is a financial instrument used by BFIs in case of extreme liquidity crisis when they are unable to return the deposits of the general public. Till now, only the then Vibor Development Bank has used it.

The NRB, acting as a lender of last resort, extended a short-term loan of Rs 500m to the troubled Vibor Development Bank in 2011 and rescued it from an acute liquidity crunch under the Lender of Last Resort Policy 2011. The central bank provides the lender of last resort facility to BFIs, especially when they face a severe shortage of investment-grade liquidity. Earlier, the central bank used to provide such a facility at the prevailing bank rate. Now, NRB has said that a two percent penal rate will be added to the prevailing rate while providing a lender of last resort facility. According to the NRB, if BFIs are unable to manage the necessary liquidity through the interbank market, daily liquidity facilities, open market transactions, and standing liquidity facility (SLF), they can get such a facility from the central bank. The facility will be provided even if the BFIs are unable to meet their immediate obligations due to a lack of marketable assets. Similarly, even if the BFIs are unable to make payment of a large amount in deposits, they can ask the central bank for such a facility. Similarly, the NRB policy talks of providing this facility to BFIs if the economy and financial system face challenges due to systemic risk posed by a single bank, or if there is a decline in the trust of the general public towards the banking system, or if a bank is unable to pay immediate obligations due to natural disasters, and if it is unable to fulfill its immediate obligations due to national and international crisis and the bank is liquidated. Getting the lender of a last resort facility is not easy. The board of the problematic bank must submit an application to the central bank with reasons for seeking a lender of last resort as well as an action plan to revive the bank. The central bank will provide the facility only after it finds the bank can operate smoothly in the long run. Along with the application, a 6-month cash flow projection, statement of assets and liabilities of different periods, statement of deposits and other short-term liabilities, and an action plan for revival should also be submitted.