I think that I have put this in the wrong forum but i am not certain how to move it.
I suppose I am asking this question because i dont really understand how the credit system works.
When the ECB changes its interest rate, why do the banks have to change theirs? Is it because the ECB is lending money to the banks at that rate? That makes some kind of sense to me however it does prompt the further question, i.e. how does this affect the credit market? Northern Rock's failed business model was reliant on credit from the market (I presume that this is rather than the bank of England). The wholesale credit market is presumably a free market (considering the laid back approach to regulation prevalent in most countries) so why would it pay any attention to the ECB or BoE. One possible analogy that i have is that the ECB is the tap and the banks are the holes in a seephose. the amount of water trickling out to the customers depends on the amount flowing through the hose (which is dependent on the ECB).
Does any of this make sense?
any help would be greatly appreciated
anon473
I suppose I am asking this question because i dont really understand how the credit system works.
When the ECB changes its interest rate, why do the banks have to change theirs? Is it because the ECB is lending money to the banks at that rate? That makes some kind of sense to me however it does prompt the further question, i.e. how does this affect the credit market? Northern Rock's failed business model was reliant on credit from the market (I presume that this is rather than the bank of England). The wholesale credit market is presumably a free market (considering the laid back approach to regulation prevalent in most countries) so why would it pay any attention to the ECB or BoE. One possible analogy that i have is that the ECB is the tap and the banks are the holes in a seephose. the amount of water trickling out to the customers depends on the amount flowing through the hose (which is dependent on the ECB).
Does any of this make sense?
any help would be greatly appreciated
anon473
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