Glossary

The interbank rate is the interest rate at which banks lend and borrow funds from each other in the wholesale money market. These loans are typically short-term, ranging from overnight to a few weeks. 🏦

The interbank rate serves as a benchmark for determining interest rates on various financial products, such as loans, mortgages, and deposits, and reflects the overall health of the financial system.

For example, if Bank A needs to meet its reserve requirements or cover short-term funding needs, it may borrow from Bank B at the interbank rate.

Fun fact: The London Interbank Offered Rate (LIBOR) 🇬🇧 which is being phased out, was once considered the most important interbank rate, serving as a reference for interest rates on a wide range of financial products worldwide. It is being replaced by alternative rates, such as the Secured Overnight Financing Rate (SOFR) in the U.S. and the Sterling Overnight Index Average (SONIA) in the UK.