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Benchmark Lending Explained - Benchmark Lending

Updated on August 15, 2010

Benchmark Lending

Benchmark lending is the process by which banks borrow money from the Federal Reserve, normally on a short term basis, to cover the shortage of funds available on thousands of mortgage loans approved for their customers. The idea was coined from the possibility of high-demand for mortgages or in other words, when a lot of people simultaneously want to borrow money from the bank to buy a home or property.

When banks run out of their reserve money and cannot lend money to their customers so they can mortgage a home or property, banks borrow money. These banks then pay interest, called benchmark lending, on these short term dealings with the Federal Reserve. These interest rates fluctuate as the demand for mortgage lending fluctuates so that investors who own stocks with these banks don't lose out on their money.




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