RE: why would one bank borrow from another bank ?


Just would like to know why one bank would borrow from another bank

swathi Gold Asked on November 22, 2019 in Business & Finance.
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Banks borrow from other banks so they can (a) meet their cash reserve minimums set by the Federal Reserve, (b) loan to borrowers so they can make money on interest, and (c) so they can have sufficient assets on hand to issue to its depositors, and pay its employees.

Banks borrow from other banks very often. The interest rate they borrow money is set by the Federal Reserve, and is called the “fed funds” rate. When the rate is low, banks can borrow more from each other, and money sloshes through the economy more quickly and easily. When the rate is high, banks are more conservative about borrowing money from other banks, so it’s harder for money to travel throughout the economy. This is why the Fed Funds rate is so effective at reigning-in or speeding-up the economy. The persons responsible at the Fed use this rate to respond to changes in the economy, so to keep it humming at a desired pace.

Star Answered on November 22, 2019.
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