(eli5) Why does it take Feds to decide what the interest rate(federal funds rate) between two commerical bank is. Why can’t two independent commerical bank decide for themselves how much interest they are willing to charge

Question

This has really been bugging me. Really appreciate it someone could explain it in simple terms

In: Economics

Answer 1

The banks use the fed’s rate to keep an eye on the trends of the economy and make sure they’re competitive with other banks, but not going dangerously below sustainability.

That was the issue in 2008, rates were so low that the banks themselves were getting in over their head and about to collapse because they didn’t have enough to cover all of their needs and their clients needs