Banking & Credit · BNK-019
Interbank Lending
A source-linked chapter designed to teach the subject itself, not a generic lesson template.
Chapter map
Follow the actual ideas in this lesson.
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Learning objectives
Learning objectives
By the end of this lesson, you should be able to explain why banks borrow from and lend to one another, describe overnight unsecured federal funds transactions, explain how reserve balances support interbank settlement, distinguish the federal funds market from broader overnight bank funding, interpret the effective federal funds rate, and connect interbank lending to day-to-day liquidity management.
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References & evidence
Source library for this chapter
These are the linked sources supporting the verified claims used throughout the lesson.
- 01Monetary Policy ImplementationOpen source ↗
Federal Reserve Bank of New York
- 02Overnight Bank Funding RateOpen source ↗
Federal Reserve Bank of New York
View claim-by-claim traceability7 verified claims
The New York Fed publishes the effective federal funds rate as a volume-weighted median of overnight federal funds transactions from the previous business day.
supported · checked Sep 21, 2026The federal funds market includes unsecured U.S.-dollar borrowings by depository institutions from other eligible institutions, generally on an overnight basis.
supported · checked Sep 21, 2026In an ample-reserves system, interbank lending remains part of money markets even though banks as a whole hold abundant reserve balances.
supported · checked Sep 21, 2026Federal funds transactions are unsecured, meaning the borrower does not pledge specific collateral for the transaction.
supported · checked Sep 21, 2026Reserve balances held at the Federal Reserve can be borrowed and lent among eligible institutions to manage payments and liquidity.
supported · checked Sep 21, 2026The overnight bank funding rate is broader than the federal funds rate because it includes federal funds transactions plus certain other unsecured overnight funding transactions.
supported · checked Sep 21, 2026Interbank lending allows financial institutions with temporary funding surpluses to lend to institutions with temporary funding needs.
supported · checked Sep 21, 2026