Finance, Forex and Investments

Is the interest rate that the Federal reserve uses.. what commercial banks have to pay to the reserve?

Does the federal reserve charge commercial banks the current rate, which they (commercial banks) have to pay to loan out money at whatever their rate would be to consumers?

Public Comments

1. The interest rate that you always here about the fed lowering the rate is the rate at which the banks keep up their reserve accounts (Prime). These reserve accounts are needed so if they have a large withdraw, they would be able to cover it. This was set up after the big crash in the 20's. Banks mainly get their lending money from other banks. The rate that these banks use is called LIBOR. This is more of an interbank rate. So if one bank has 1 Million dollars, they will lend out 90% or $900,000 and keep 10% for their reserve. So the next bank will have $900,000 they will keep 10% for their reserve and lend out the rest. So as time goes on, that million dollars makes a large loop between banks.