Dumb question I’m sorry but I’m new to my job and trying to learn everything I can. Why might a bank put their money into a different financial institution? I’m assuming for a better interest rate?
Deposits at other institutions
Answers
Well the bank can't pay itself an interest rate, since that's its own money. So, yes, one of those reasons is likely to earn interest on their cash holdings. I'm sure there are other, more strategic reasons as well but I will leave that up to any banking professionals on here.
Money being rolled over thru the various channels and mediums retains and accelarate its value. Banks are also a kind of business which have to pay Interest on deposits and other overheads. To payback this, it will earn only when funds are put in other profitable channels.
You have to look at it from an ALCO (Asset Liab Management) perspective where the committee decides on the most effective use of resources in accordance with the RISK guidelines set.
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Cash Management