The idea of LOLR was introduced by Walter Bagehot in 1873 . He developed a system where the central bank would provide a temporary liquidity injection into a single bank or the banking system at a time of crisis. Bagehot's idea was that a short-term temporary loan should be given to illiquid banks and ones which are insolvent should be allowed to fail. The effect being that this would help to reduce systemic risk and the collapse of the banking system . There are four main criticisms of this protection scheme as firstly LOLR could in some aspects be seen as illegal under EC law . …
