I'm currently looking at the lender of last resort concept in my graduate class. I don't think that many would disagree with the idea of a central bank providing last resort lending to illiquid but solvent banks. However, should a central bank act as a lender of last resort to sovereign states? One can search hard, but there is no mention of this in Bagehot's Lombard Street. Nevertheless, the idea that central banks should act as a lender of last resort to sovereigns has almost become orthodox. See, for example, this Voxeu piece.
Back in 2012, in the midst of huge stresses in European financial markets and funding problems for some Euro economies, the ECB decided formally that it would act as a lender of last resort to sovereign states. The technical name given to this policy was Outright Monetary Transactions (OMT). This policy allowed the ECB to buy sovereign debt on the condition that governments tightened their proverbial fiscal belts. This policy calmed financial markets and appears to have provided a short-term fix for the eurozone crisis. However, according to Ashoka Mody in this Project Syndicate article: "rather than constituting a great success, OMT may well be remembered as an error born of expediency. Worse, it could undermine the ECB's hard-won independence and credibility. That is an outcome that the eurozone might not survive".
