The Regulatory and Practical Application of the Lender of Last Resort Pakistan Doctrine in Pakistan

This thesis is divided into four main parts. This thesis examines the operation of the lender of last resort (LOLR) in Pakistan. In order to deter financial crisis, the Central Bank (CB) plays the role of LOLR by taking necessary steps. The operations of LOLR by the Central Banks of the United Kingdom and the United States of America are used as examples to present reforms for the system of Pakistan. Firstly, the research evaluates the significance of the banking industry and examines the importance of LOLR in Pakistan. The thesis further examines the causes of financial crises and evaluates the factors that made LOLR an integral part of the responsibilities of CBs. Secondly, it explains the progression of the role of LOLR along with the emergence of CBs as a financial policy regulator of the State. Furthermore, this thesis analyses the classical and modern theories of LOLR.

Thirdly, the case study of KASB bank from Pakistan is used to identify the problem in the current regulatory system. In order to determine if LOLR can be effectively regulated in Pakistan; Northern Rock, Lehman Brothers, and AIG are used as examples. Fourthly, this thesis examines the current laws which regulate LOLR in Pakistan and evaluates its limitations. There are currently two types of banking systems operating in Pakistan, which are commercial and Islamic banks. The latter operates on interest-free banking, which could limit the effectiveness of the LOLR mechanism. Notwithstanding, this thesis mainly addresses the commercial banking sector of Pakistan. The thesis concludes by recommending reforms to the financial system of Pakistan according to the lessons learned from the illustrations of the UK and the USA. It also provides an analysis of the recommended reform proposals.