Question

Does The Fed issue fed funds loans? Does The Fed receive fed funds loans?

  1. Does The Fed issue fed funds loans?

  1. Does The Fed receive fed funds loans?

Homework Answers

Answer #1

In the United States, federal funds are overnight borrowings between banks and other financial institutions to maintain their bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear financial transactions.

Therefore, the Federal Reserve neither issues nor receive Fed funds loans. These loans are issued by one bank holding excess reserves to other banks that are  short of funds , in order to help them meet minimum reserves requirement set by the Federal Reserve. Although, these funds ultimately end up being deposited at the Fed, but not as loans, instead as Reserves.

Such borrowings happen at the Fed Funds Rate.

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