Interbank Rate

Interbank rate

See: LIBOR

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Interbank Rate

What Does Interbank Rate Mean?

The rate of interest charged on short-term loans made between banks. Banks borrow and lend money in the interbank market to manage liquidity and meet their regulatory requirements. The interest rate charged depends on the availability of money in the market, prevailing rates, and the specific terms of the contract, such as term length.

Investopedia explains Interbank Rate

Banks are required to hold an adequate amount of liquid assets on reserve, such as cash, to manage potential withdrawals by their clients. If a bank cannot meet these liquidity requirements, it has to borrow money, and the interbank market helps cover the shortfall. Some banks, in contrast, have excess liquid assets above and beyond the liquidity requirements. These banks will lend money in the interbank market, receiving interest on the assets. There is a wide range of published interbank rates, including the LIBOR, which is set daily, based on the average rates on loans made within the London interbank market.

Related Terms:
• Euro LIBOR
• Interest Rate
• London Interbank Offered Rate—LIBOR
• Federal Funds Rate
• Singapore Interbank Offered Rate—SIBOR