The interest rate at which depository institutions (DIs) lend to other DIs overnight on an uncollateralized basis to satisfy legal requirements like the minimum liquidity coverage ratio requirement set by 12 CFR 249.10.

This is NOT directly set by the Fed. The effective rate is calculated as the average of each bank’s agreed upon overnight loan rates. The upper bound of the effective rate is the IORB rate and the lower bound is the ON RRP rate. More

The higher this rate is, the less banks want to lend to public borrowers because they can get good interest return from the Fed, which raises other interest rates. The lower this rate is, the more banks turn to the public for interest revenue.