Re: How can the interest on reserves be higher than the federal funds rate.
There are two different types of loans, made by two different entities. The amount that can be earned with this spread is so little that many banks do not try to take advantage of this, as they can put their money to better use by lending to consumers who will pay a much higher spread
?Federal Funds Rate is the rate at which banks lend reserves to each other.
Interest Rate on reserves is the rate at which banks earn money for having reserves.
Why would you lend reserves when you could get more by not lending them at all? Even if it is a small spread?