Interbank loan is a part of the interbank lending market in which various banks extend loans to one another for a certain period. The term specified usually range from overnight to one week. It is a global network utilized by financial institutions. Interbank loans are facilitated to cover the liquidity requirements. Suppose, if there is a shortage of liquid assets in a bank, it can borrow from other banks who have an excess of them. Liquid assets are those which can be easily converted into cash without any major changes in the product’s resale value. There are various roles of interbank lending like maintaining an efficient banking system.
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