| T.R | Title | User | Personal
Name | Date | Lines |
|---|
| 936.1 | | VAXCPU::michaud | Jeff Michaud - ObjectBroker | Wed Nov 08 1995 01:51 | 9 |
| > What is the diff. between the "discount rate" and the "federal funds rate"?
Well ones the rate that banks charge each other for overnight
loans, and I'm less sure what the other one is but I believe
it's one of two things; either the rate the fed. charges banks
for overnight loans, or it's the % of cash a bank must have on
hand.
How close was I?
|
| 936.2 | | NOTAPC::LEVY | | Wed Nov 08 1995 15:46 | 17 |
| re: .1
> Well ones the rate that banks charge each other for overnight
> loans
Yes, this is the fed funds rate. Market-set, but strongly influenced by
Fed operations.
> the rate the fed. charges banks for overnight loans
This is the discount rate; set by the Fed - only changes when the Open
Market Committee decides to change it.
> it's the % of cash a bank must have on hand.
This is the reserve ratio.
|
| 936.3 | | EVMS::HALLYB | Fish have no concept of fire | Wed Nov 08 1995 18:06 | 11 |
| Just to elaborate on .2 a tad: Discount window borrowing (i.e., what
banks pay the discount rate on) is not an overnight thing. Usually when
a bank goes to the discount window they are borrowing for longer periods.
This is indicative of a bank that has overextended itself. If it were
just a matter of cash flow for a few days, then it's easier to go the
interbank (fed funds) route.
Banks that borrow from the discount window get more than the usual
scrutiny from bank examiners.
John
|
| 936.4 | the exception that proves the rule? | NOTAPC::LEVY | | Wed Nov 08 1995 19:07 | 8 |
| re: .3
A few years ago, the Bank of New York had a computer-related failure
which prevented them from reconciling their daily T-Bond
trading/clearing operations by the Fed-specified deadline. They had to
borrow ~$10 billion for a day or two from the Fed via the discount
window, as that kind of coin wasn't available that day via interbank
(fed funds) borrowing.
|