Overnight Lending

Overnight lending is a short-term borrowing arrangement where financial institutions, like banks, lend money to each other for one night. This helps banks manage their daily liquidity needs and ensure they have enough cash to meet withdrawal demands or settle transactions. The interest rate charged for these loans, called the overnight rate, influences overall borrowing costs and monetary policy. Essentially, it’s a quick, secure way for banks to coordinate their funds overnight, maintaining financial stability and smooth operation of the banking system.