Dr. Ed’s
Economic
Indicators

PRIME RATE

Release Date: Daily
Release Coverage: Monthly Average
Released By: Federal Reserve Board
Official Release (weekly): http://www.federalreserve.gov/releases/h15/Current/

The prime rate is the base rate banks use in pricing commercial loans to their best and most credit worthy customers.

Typically, institutions adjust this rate from time to time in response to changes in market conditions. Interest rates for most consumer loans are generally higher than the prime rate and are determined by the particular financial institution making the loan. Though some banks charge their best customers more and some less than the official prime rate, the rate tends to become standard across the banking industry when a major bank moves its prime up or down. Weekly figures are averages of seven calendar days ending on Wednesday of the current week; monthly figures include each calendar day in the month.

WHAT DR. ED SAYS:

The Prime Rate is generally tied to the level of risk for certain loans and loan customers. A more creditworthy customer may receive a loan at prime or prime and a fraction of a basis point, while a less creditworthy customer may receive a loan at prime + 2. This also applies to loans that have more risk and less value to the assets being purchased. So for banks, it is important to monitor prime, as it is a generally accepted rate with which loans can be priced. It may also be to a bank's advantage to monitor local competition, since certain market conditions can affect pricing of loans and whether or not a bank may need to price additional basis points to a loan from prime.

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