[Source:] If banks started simply depositing money with each other, all else aside, then what would happen? Keep in mind that the interest rate is basically the price of money. Supply-and-demand would dictate that ... ♦ a huge inflow of capital => you can lower the interest rate paid on that capital ♦. Banks don't pay high interest (and certainly wouldn't do so to each other) because of their intristic good will; they pay high interest because they cannot secure capital funding at lower rates. This is a large reason why the large banks will generally pay much lower interest rates than smaller niche banks; the larger banks are seen as more reliable in the bond market, so are able to get funding more cheaply by issuing bonds.
I understand (and so ask NOT about:) that interest rate = the price of money = opportunity cost of money, and also the implication that I surrounded with ♦ (a lozenge). What else would result? Please differentiate and segregate the positive and negative effects.