When banks and investors need to borrow cash on a short-term basis (e.g., overnight), other banks make their “excess” reserves available in multi-billion-dollar electronic transactions that take place late in the trading day.  In today’s interest rate world, the borrower would pay approximately 0.005% per day ($50,000 per day per $1 billion borrowed).  When the regular flow of “overnight” money (about $75 billion a day)disappeared on 9/16/19, lenders exploited the shortfall and the daily rate that was charged increased “fivefold,” i.e., a cost of $250,000 per day per $1 billion borrowed (source: Federal Reserve).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

 

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.