Question

Why might a bank be willing to borrow funds from other banks at a higher rate than the rate at which it can borrow from the Fed?

Short answer

Borrowing from the Fed requires collateral, whereas borrowing from a bank with a higher interest rate does not.

Step-by-step solution

Content Introduction

Business banks get from the Federal Reserve System (FRS) basically to meet hold necessities before the finish of the work day when their money close by is low. Getting from the Fed permits banks to get themselves back over the base save edge. A bank gets cash from the public authority's national bank using what is known as the markdown window.

Getting through the rebate window is advantageous in light of the fact that it's accessible $100\%$of the time.

Content Explanation

Banks can get from the Fed to meet save prerequisites. The rate charged to banks is the markdown rate, which is typically higher than the rate that banks charge one another. Banks can borrow money from one another to achieve their holding requirements, which are subsidized by the government.