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What is the interbank lending market?

Interbank lending market

The medium by which banks extend loans to one another is called the interbank lending market. Most loans are made on a short-term basis, typically overnight. This has prompted the repayment interest rate to be dubbed "the overnight rate".

Where have you heard about the interbank lending market?

The London interbank offered rate (Libor) regularly features in the news following the Libor Scandal, that saw banks and individuals conspire to fix the average rate. In July 2017, the Financial Conduct Authority called for a Libor replacement by 2022.

What you need to know about the interbank lending market.

Under reserve requirement regulations, or the cash reserve ratio, financial institutions are required to hold a enough cash to ensure the bank can operate its key services for clients. When banks have insufficient liquid assets to satisfy the regulation, they borrow on the interbank lending market.

By the same account, banks that have a surplus of liquid assets, such as cash, will offer loans to other banks and receive an additional income from the rate of interest.

Find out more about the interbank lending market.

An investigation into the interbank lending market revealed fraud. Learn more about the Libor scandal.

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