Adjustment Credit

DEFINITION of 'Adjustment Credit'

A short-term loan made by a Federal Reserve Bank to a smaller commercial bank as needed to maintain reserve requirements and support short-term lending. These advances are a very common form of borrowing from a Federal Reserve Bank and are most often used when interest rates are high and money supply is short.

BREAKING DOWN 'Adjustment Credit'

Commercial banks are required to hold a certain amount of funds in reserve in order to assure customers that their money is available upon request. When reserves are low, adjustment credits allow banks to continue to lend through advances by the Federal Reserve that are secured through the bank's own promissory notes.

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    Learn how commercial banks borrow from the Federal Reserve to meet minimum reserve requirements, and discover the pros and ... Read Answer >>
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    Understand what the Federal Reserve does in order to expand or contract the economy. Learn what depository institutions can ... Read Answer >>
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