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Federal funds
This article is about funds maintained by the U.S. Federal Reserve. For the funds provided by the U.S. government in terms of aid and assistance, see
Federal aid
.
In the
United States
,
federal funds
are overnight borrowings between
banks
and other entities to maintain their
bank reserves
at the
Federal Reserve
. Banks keep reserves at Federal Reserve Banks to meet their
reserve requirements
and to clear financial transactions. Transactions in the federal funds market enable
depository institutions
with reserve balances in
excess of reserve requirements
to lend reserves to institutions with reserve deficiencies. These loans are usually made for one day only, that is, "overnight". The interest rate at which these deals are done is called the
federal funds rate
. Federal funds are not
collateralized
; like
eurodollars
, they are an
unsecured
interbank loan
.
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