LeoGlossary: Interbank Lending Market
The interbank lending market is a market where banks provide loans to each other for a specified term. These are usually for durations less than a week with the majority being overnight. The rate is called the interbank rate although some will use the term overnight rate.
Banks have reserve requirements set down by the central banks they operate under. This means that a certain amount of cash needs to be available for the bank to provide liquidity as required by their customers withdrawing deposits. This is done to avert bank runs which were so common in the past.
Those banks that fall below the required levels have to go borrow the liquidity from other financial institutions. The borrowers will pay interest enabling those institutions with excess reserves to earn interest on their money.
General:
Posted Using LeoFinance Beta
