Banks then use this money to make loans available to household and corporate borrowers. They then earn their profits by lending at an interest rate higher than the rates they pay on their deposits.
The largest commercial banks in the US bank of America, Bankers Trust Corporate, Chemical Bank, Chase Manhattan Bank, Citibank, Morgan Guaranty Trust Corporation and Wells Fargo, and many others compete with each other to make loans available to large corporate clients. The interest rates they charge corporate clients for loans are the main form of competition, a price competition, in this case. When this competition becomes aggressive, the interest rates they charge have a tendency to fall, and so do their profits. To avoid this aggressive competition, a form of price leadership was put into place.
The interest rate charged by banks to large corporate clients is called the prime rate. This rate is well known and often quoted in newspapers. Most large banks charge the same o