Ya but why do banks lend each other? How do banks borrow in London? But this is a technically not so correct definition. Because there ought to be more than forex bank manipulation strategy implementation banks in whole London and all of them can’t be lending to each other at the same interest rate, right?
We’ll come to that problem very soon but first of all. Why the do banks lend each other? So why do these banks need to borrow from each other? Well, there are days when more customers have made withdrawals than deposits. Bank has to borrow from its rival banks to cover the shortage of cash. It is not necessary that a bank is running into losses and hence borrowing from the other banks.
Because a bank would have loaned the money to other customers for 5-10-20 years’ period so it can’t immediately recover all the cash in one day. On the other side, banks with a cash surplus can make extra profits by lending its cash to a rival bank. Thus, Banks lend to each other on a short-term basis to either to cover the shortage of cash or to make a profit. How do banks borrow each other in London? When you want to take car- loan, you visit various bank branches, take their brochures, if you’re tech-savvy you might just visit the website of all famous banks and compare their interest rates, loan terms etc. But when one bank has to borrow from another bank, such transactions take place via phone-conversations between their executives, there is lot of give and take, bartering etc.