Bank rates work in three different ways. There are interbank rates which represent the cost of borrowing that banks pay each other or the government to borrow money for solvency. Then there is the savings rate a bank pays depositors for use of their money placed in savings in that particular bank. Finally, there is the interest rate charged on loans banks provide individuals and businesses to use the bank’s money, resulting in a profit from the money paid back.
Interbank rates are the least understood and the most critical for banks. Banks themselves do not keep every cent in their accounts. They try to lend as much as possible to make new money off of loans via interest. However, from time to time, banks need cash infusions to close deals, stay solvent, or meet liquidity requirements imposed by government regulations. Read more…








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