The Role of Central Bank as the Lender of Last Resort in the Pandemic Covid-19 Era, a Study of Emergency Liquidity Assistance

Abstract

The condition of systemic banks can affect the financial system stability when they face liquidity problem, in which an intervention by the government act as prevention and handling of liquidity problems to prevent contagious effect. Meanwhile, in Indonesia, emergency liquidity assistance (ELA) during a crisis was abolished through Law No. 9 year 2016 (PPKSK Law) which causing Bank Indonesia's lender of last resort (LoLR) facility in dealing with systemic bank liquidity problems only in the form of short-term liquidity loan (PLJP). The purpose of this paper is to track on the condition of ELA in Indonesia which was provided by Bank Indonesia as LoLR post the enactment of Law No. 2 year 2020 during the Covid-19 pandemic era. The research method used is normative juridical, and the data obtained were analyzed using analytical descriptive method. Considering that pandemic has limited economic activity, the government has added the authority of Bank Indonesia to provide special liquidity loans that can be provided to systemic banks if PLJP does not significantly resolve the liquidity problems. In other words, special liquidity loans revive ELA which was abolished through PPKSK Law, so that there is an ELA which includes settlement in the era of the covid-19 pandemic and becomes a backup scheme to avoid ongoing problems from systemic banks. Keywords Emergency Liqudity Assistance, Lender of the Last Resort.