DEFINITION of 'Marginal Lender'

1. A business that will only provide funds to a borrower in exchange for a certain interest rate. If the interest rate drops below the level set by that lender, the transaction will not take place.

2. In the European Union, marginal lending is the practice of providing overnight liquidity to banks through the European Central Bank. The interest rate on these loans is called the marginal lending rate. It is the equivalent of the Federal Reserve's Discount Window in the United States.

BREAKING DOWN 'Marginal Lender'

A marginal lender should not be confused with a margin lender, which is a brokerage that lends money to investors who wish to make trades with borrowed funds. The investors put up securities they already own as collateral. Investing on margin is considered quite risky because it amplifies investment losses.

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