Benchmark lending can be discussed in American Sign Language by using a combination of the following signs:
APR
BANK
BORROW
CASH
CREDIT
DEPOSIT
FEDERAL
GOOD
INTEREST
KEEP
MONEY
RATE
RESERVE
STANDARD
ESTABLISH
WORTHY
Banks have to keep a certain amount of money in reserve.
If they dip into their cash reserves they have to borrow money from other banks (interbank borrowing) or investors. Interest is the price paid to borrow money. Banks generally get to borrow money at the best interest rates. When something is the best it is sometimes called "prime" or "the prime." Thus the best interest rate is the "prime rate." Interest rates fluctuate (they go up and down). In the United States the Federal Reserve sets the prime interest rate. Another way to say that is that the Federal Reserve tells banks what the lowest amount of money they can charge to loan money to other banks or extremely creditworthy corporations. That prime rate then becomes a benchmark that banks use to determine how much interest to charge on various types of loans. The more creditworthy a borrower is, the closer they are able to get to the prime rate. The worse a borrower's credit is -- the more interest a bank will charge (until at some point the bank will decline to extend a loan because it simply isn't worth the risk).
So, "benchmark lending" refers to that whole process of a benchmark being set for interest rates and banks deciding how much to charge for loans based on that benchmark.
Also see:
15-Year Fixed Rate benchmark lending
APR
Notes: