DEFINITION of 'Lombard Rate'

The rate charged to banks by the German central bank for collateralized loan obligations. A Lombard rate is an interest rate German banks use as upper limit daily money rates. This rate mainly applies to international equities not so much United States equities or equities from other countries. Prior to the Euro, Germany had the authority to control its own monetary policy and raise or lower the Lombard rate, but this no longer holds true.

BREAKING DOWN 'Lombard Rate'

This rate is similar to the discount rate used by the Federal Reserve Bank in the United States. The rate is usually 0.5% above the Bundesbank discount rate. Bundesbank is the central bank of Germany. In Germany, this rate is called the lombardsatz and it is considered a financial market indicator in that country. Also referred as the rate of interest charged on a Lombard loan. A Lombard loan is given in the form of securities and is provided by a financial institution against pledged collateral.

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