Interbank Call Money Market: Overview and Examples

What Is the Interbank Call Money Market?

The interbank call money market is a short-term money market which allows for large financial institutions, such as banks, mutual funds, and corporations, to borrow and lend money at interbank rates, the rate of interest that banks charge when they borrow funds from each other. The loans in the call money market are very short, usually lasting no longer than a week, and are often used to help banks meet reserve requirements.

Understanding the Interbank Call Money Market

The interbank call money market is a term used to refer comprehensively to a call money market for institutions. It is not exclusively used by banks. Interbank call money market customers can include other financial institutions, mutual funds, large corporations, and insurance companies.

Entities transacting within the interbank call money market seek short term loans. Loans typically have a duration of one week or less. Banks often use the interbank call money market to meet reserve requirements. Other entities use short term loans from the interbank call money market to manage various liquidity needs. Loans in the interbank call money market are typically transacted based on the London Interbank Offer Rate (LIBOR). Loans are transacted globally. The interbank call money market can include global participants with transactions across multiple currencies.

Various types of interbank money markets exist globally. The interbank call money market offers liquidity for a broader range of participants. An interbank money market can also be exclusively focused on banking entities. Interbank money markets typically involve short terms loans transacted across various currencies with multiple international participants. The interbank money markets are sources of short terms funds for banks and participants in the financial markets. Financial entities utilize these loan sources and rely on them when managing their capital and liquidity requirements. A lack of market lending in these market types was a factor in the 2008 financial crisis.

What Is Call Money?

Call money and call money markets, in general, are characterized by very short term loans. Call money loans typically range from one to 14 days. They can include institutional participants such as in the interbank call money market. Other types of call money markets also exist. Brokerages may use call money markets to cover margin accounts. Call money rates are usually influential in the margin borrowing rates of brokerage accounts since call money serves as a source of funds to cover margin lending.

Call money loans typically do not have set repayment schedules since they are so very short term—coming to maturity within two weeks. Thus, call money is used for very short term needs and is repaid quickly.