Do banks borrow money from the central bank?

Question

I know the central bank sells and buys govt securites. But if the banks want money, what happens? Do they borrow from the central bank too (can they?), or can they only obtain money from other commercial banks? Also, how does the cash rate influence the banks?

Answer 1

At least on a daily basis, bank will close their daily deals (cheques issued by their customer, they clear cheques issued by other banks etc). Healthy bank do not need to borrow money from other bank because they have enough cash to settle the transactions.

If they don;t have enought cash then they borrow from other commercial banks. They use the inter bank rate to be applied on the money they owe (which is higher than the normal lending rate). And yes, Central bank acts as lendors of last resort. Meaning they can ask for money from central bank if they really short on cashflow for a short period.

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