Named after Walter Bagehot.
This is the concept that central banks around the world use. It is tied to the idea of being "the lender of last resort".
Bagehot advocated very large loans at very high rates are the best remedy for the worst malady of the money market when a foreign drain is added to a domestic drain. Essentially, it is done to prevent economic disruption as a result of financial panics and to contain bank runs from spreading.
He espoused his theory in his work Lombard Street printed in 1873.
