See: Interbank.
It's the rate at which one bank lends to another.
Remember that the Fed lends money to banks initially. But they don't do it in one steady flow; in fact, Fed money comes out in waves, like the Sunday morning after New Years when you've had too much to drink.
So banks, finding themselves with more cash than they can loan out to would-be borrowers, ask to offload some of that dough to other banks who might be in more direct need of the dough.
Related or Semi-related Video
Finance: What is Electronic Communicatio...12 Views
Finance a la shmoop what is the electronic communication network or ECN?
all right it's the computerized and wired version of this for a small fee [Large computer network]
traders can plug in to a network to trade stocks you know think about it
like Facebook for stock traders only with less political ranting and fewer
photographs of babies and freshly cooked meat generally well generally speaking [A pan of meat and potato's appear]
ECNs are "off-market" that is they aren't really directly part of
an established trading system like the New York Stock Exchange or Nasdaq or one
of the other blessed exchanges they connect market makers directly to third
parties allowing them to trade to their heart's content there aren't a lot of
actual physical hands at work here most of the limit orders are matched
electronically the network charges its fee the transaction is processed and [Company share price appears]
life moves on so think about it like it's 2:00 a.m. on a Saturday and Joe who
likes to trade in his underwear don't ask us why it's just dying to sell a [Joe sits down at PC]
hundred shares of coke to Betty who likes to trade while head-banging to Led
Zep and you know likes to trade with Achmed who's saving money for an air
conditioner yeah well no sweat so this is perfect for anyone who wants to
become active in the trading of stocks but hates any kind of physical human [Man waving to woman and woman walks by]
interaction yeah don't worry the robot rebellion will soon be upon us and ECNs
will rule the roost
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