<p>You've asked a number of questions; I'll answer three. </p>

<ol>
<li><em>If a bank can borrow at the Fed window, then why not borrow short-term if you need short term or long-term if you need long term.</em></li>
</ol>

<p>Banks are strongly discouraged from borrowing from the Fed. Doing so is expensive and an indicator of institutional distress. </p>

<ol start="2">
<li><em>Why would you lend money by buying treasuries and then borrow short-term using those as collateral.</em> </li>
</ol>

<p>The same reason that banks borrow short and lend long in any other context: short rates are lower than long rates, so the bank earns a spread. </p>

<ol start="3">
<li><em>Borrow short term from whom?</em></li>
</ol>

<p>Money market mutual funds, mostly. </p>

CC BY-SA 3.0
2016-10-24T17:09:05.717Z
2016-10-24T17:09:05.717Z
dismalscience
<p>I read a statement that one reason for persistent demand for US Treasuries is that US banks buy them because they can be used as collateral for acquiring short-term debt.</p>

<p>I don't understand this. If a bank can borrow at the Fed window, then why not borrow short-term if you need short term or long-term if you need long term.</p>

<p>Why would you lend money by buying treasuries and then borrow short-term using those as collateral. It makes no sense. Borrow short term from whom?</p>

<banking><financial-economics><bonds>
How is short-term borrowing by banks in the US performed?
Lassie Fair
# How is short-term borrowing by banks in the US performed?

(Asked by: username_0 on 2016-10-24)

I read a statement that one reason for persistent demand for US Treasuries is that US banks buy them because they can be used as collateral for acquiring short-term debt.

I don't understand this. If a bank can borrow at the Fed window, then why not borrow short-term if you need short term or long-term if you need long term.

Why would you lend money by buying treasuries and then borrow short-term using those as collateral. It makes no sense. Borrow short term from whom?

**Tags:** banking, financial-economics, bonds


---

## 1 answers

### Answer by username_1 on 2016-10-24. Score: 1

You've asked a number of questions; I'll answer three.

1. *If a bank can borrow at the Fed window, then why not borrow short-term if you need short term or long-term if you need long term.*

Banks are strongly discouraged from borrowing from the Fed. Doing so is expensive and an indicator of institutional distress.

2. *Why would you lend money by buying treasuries and then borrow short-term using those as collateral.*

The same reason that banks borrow short and lend long in any other context: short rates are lower than long rates, so the bank earns a spread.

3. *Borrow short term from whom?*

Money market mutual funds, mostly.


---

