4 ms·
Competition? Profit motive? If they go too far one way, people will use other banks. If they go too far the other, they waste money. Also, there comes a poi
by wccrawford 4y ago
Competition? Profit motive?
If they go too far one way, people will use other banks. If they go too far the other, they waste money.
Also, there comes a point where they could just invest that money in someone else rather than offer the service themselves, and make more money. That keeps things from going too far that direction.
And finally... Deciding things is hard. When someone else decides things for everyone, legally, it's an easy choice to follow it. Most of the time that's price fixing and is illegal.
- djyaz1200 4y ago"Most of the time that's price fixing and is illegal." Bingo! That's the answer, the fed funds rate is a price fixing tool. Banks via the federal reserve governors meet to decide the base interest rate from which most other interest rates are derived. Aka the "price" of money. This is done to optimize the rent seeking activity of loans. The banks want to optimize how much interest they extract from the productive economy without harming it to the degree it stops growing or shrinks. Related, most people think the Fed IS the government but it is not... it's banks... https://www.stlouisfed.org/in-plain-english/who-owns-the-federal-reserve-banks https://www.stlouisfed.org/in-plain-english/who-owns-the-fed...
- ineedasername 4y agoSo, theoretically, banks could lend at different rates but for various practical reasons they don't?