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The interbank lending market is a market in which banks lend funds to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being overnight. Such loans are made at the interbank rate (also called the overnight rate if the term of the loan is overnight).
The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market. In some countries (the United States , for example), the overnight rate may be the rate targeted by the central bank to influence monetary policy .
In 2012, revelations emerged about the manipulation of the London Interbank Offered Rate by various global banks.This scandal led to a significant shift in regulatory attitudes towards LIBOR, which was deeply embedded in the financial system due to its connection with approximately $300 trillion worth of loans, derivatives, and other financial instruments across multiple currencies. [3]
For decades, the London interbank offered rate was the benchmark for pricing a wide variety of loans, including adjustable-rate mortgages. But over recent years, it’s been completely replaced by ...
Lenders agree to lend borrowers funds only "overnight", i.e., the borrower must repay the borrowed funds plus interest at the start of business the next day. [1] Given the short period of the loan, the interest rate charged in the overnight market, known as the overnight rate is, generally speaking, the lowest rate at which banks lend money.
Course of EONIA 1999–2009. Eonia (Euro Overnight Index Average) was computed as a weighted average of all overnight unsecured lending transactions in the interbank market, undertaken in the European Union and European Free Trade Association (EFTA) countries by a Panel of banks (the same as for Euribor) subject to the Eonia Code of Conduct.
Though the London Interbank Offered Rate (LIBOR), the Secured Overnight Financing Rate (SOFR) and the federal funds rate are concerned with the same action, i.e. interbank loans, they are distinct from one another, as follows: The target federal funds rate is a target interest rate that is set by the FOMC for implementing U.S. monetary policies.
SAIBOR is the key interbank rate in Saudi Arabia, and the benchmark for commercial and consumer lending rates. [2] It is also known as SIBOR, Saudi Interbank Offered Rate, but can be confused with SIBOR, Singapore Interbank Offered Rate.