system
Given the following post, respond as if you're commenting on Reddit:
human
Why would a bank borrow money from the fed at the discount rate if it can borrow from other commercial banks at the federal funds rate which is lower than the discount rate that the fed charges?
gpt
They wouldn't, which is kind of the point. The fed prefers if banks lend among themselves first and foremost. They are a lender of last resort, or in other words only meant to lend *if* other options aren't available. And making it slightly more expensive than interbank lending ensures banks don't lend from the fed just because they can.