What is the rate charged on overnight loans between commercial banks known as?

The rate charged on overnight loans between commercial banks is known as the federal funds rate. This rate is crucial in the banking system because it influences the overall cost of borrowing and lending in the economy. When banks are short on reserves and need to meet reserve requirements, they borrow from each other at this federal funds rate. It serves as a benchmark for other interest rates in the economy, impacting mortgages, business loans, and savings rates.

The federal funds rate reflects the health of the economy and monetary policy decisions made by the Federal Reserve. By increasing or decreasing this rate, the Federal Reserve can influence economic activity, encouraging or discouraging borrowing and spending. This is a key tool in managing economic growth and inflation.

In contrast, the discount rate pertains to the interest rate the Federal Reserve charges banks for loans taken from the central bank's lending facilities. The repo rate relates to repurchase agreements, where securities are sold and then bought back at a later date, typically used for short-term funding. An interest rate swap involves exchanging cash flows or interest payments between parties but does not directly relate to overnight loans between banks.