4 ms·
It means that the individual banks don’t trust each other and are leery to provide credit to each other literally “over night”. So they aren’t willing to provid
by whb07 7y ago
It means that the individual banks don’t trust each other and are leery to provide credit to each other literally “over night”. So they aren’t willing to provide liquidity to each other because they fear they will not pay back.
Remember that banks have fractional deposits, so they might be left without money throughout the night and then have to literally be insolvent the following morning. So the Fed steps in to cover these situations.
This is important because the economy and the system in general is supposed to be doing “just swell” when there are symptoms of a disease
- aalleavitch 7y agoSo there’s a ton of money in the economy but no way to actually make it liquid short term short of the fed, indicating that maybe the money on the books has a better chance of suddenly vanishing into thin air than anyone is comfortable with? Where have I heard this before?
- whb07 7y agoWell if it’s all loaned out and invested away you can’t exactly conjure it back home every night. But yeah, essentially the Fed is trying to stay ahead of this issue they were the cause of.