The central bank's role as a "lender of last resort" is critical in preventing bank runs. Which of the following accurately describes how this function stabilizes the banking sector?
1
It ensures that all loans in the economy are backed by government reserves.
2
It directly guarantees all deposits made in commercial banks.
3
It provides emergency liquidity to solvent banks facing temporary cash flow issues.
4
It prevents all forms of lending by non-bank financial institutions.