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Federal
funds transactions can be initiated by either a funds lender or a funds
borrower. An institution seeking to lend federal funds identifies a
borrower directly, through an existing banking relationship, or
indirectly, through a federal funds broker.
The most
commonly used method to transfer funds between depository institutions is
for the lending institution to authorize its district Federal Reserve Bank
to debit its reserve account and to credit the reserve account of the
borrowing institution.
The most
common type of federal funds transaction is a very short-run unsecured
loan between two financial institutions; some transactions, however, have
longer-term maturities. Most overnight loans are booked without a
contract.
The
borrowing and lending institutions exchange verbal agreements based on
various considerations, particularly their experience in doing business
together, and limit the size of transactions to established credit lines
in order to minimize the lender's exposure to default risk. Such
arrangements facilitate speedy processing at the lowest possible
transaction cost.
Federal
Funds Rate History: For Historical Reference Only: Rates and explanations
provided by the Federal Reserve System. Accuracy of our information
is not guaranteed. Some rates are rounded due mid-month changes or may
contain typographical errors. If you find a typographical error in
the rate table let us know. | 
