Why financial institution lend another financial institution


Problem

Plot the federal funds rate from January 2008 to the present. The interest rate on reserves was 0.25% from October 2008 onward. Why would the federal funds rate be less than 0.25% over this period? Put another way, why would any financial institution lend at less than 0.25% to another financial institution if could lend to the Fed at 0.25%?

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Macroeconomics: Why financial institution lend another financial institution
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