Friday, May 1, 2009

Commercial banks and the Money Market (3)

These banks are also likely to find their reserve positions affected first by any change in money market conditions arising from nonbank sources. Because of the critical importance of the participation of these large commercial banks in the money market,we pay particular attention to the character of their operations. Only about 100 banks in this country account for about 90 per cent of the gross purchases and sales of federal funds. Even nonmoney market banks,though,have some connection with the money market through their corre-spondent relationships. In short,the wole commercial banking system,by putting in or taking out excess funds from the money market,affects the market level of sort-term interest rates and availability of short-term credit. In turn,the entire banking system is affected by pressures or ease in the money market by reason of the impact of such changes on the liquidity of the banking system.

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