What Is a Central Bank?

A central bank stands at the top of the banking system and controls some of the levers that then affect the kind of lending and borrowing that other banks further down stream will do. The federal reserve sets interest rates, which is an interest rate at which banks can borrow from each other. And so say they raise the federal funds rate, then a bank that's looking to make a mortgage loan will find itself paying more to access luquidity. In turn, in their business and consumer loaning lending, will pass on credit at terms influenced by the Central Bank.