Adjustment Credit

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  2. Promissory Note

    A financial instrument that contains a written promise by one ...
  3. Free Reserves

    A measurement of a bank's reserves that is equal to the difference ...
  4. Bank Run

    A situation that occurs when a large number of bank or other ...
  5. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
RELATED FAQS
  1. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Full Answer >>
  2. How does the bond market react to changes in the Federal Funds Rate?

    The bond market is highly sensitive to changes in the federal funds rate. When the Federal Reserve increases the federal ... Read Full Answer >>
  3. How does investment banking differ from commercial banking?

    Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>
  4. Why do commercial banks borrow from the Federal Reserve?

    Commercial banks borrow from the Federal Reserve primarily to meet reserve requirements when their cash on hand is low before ... Read Full Answer >>
  5. What are the differences between the Federal Funds Rate and LIBOR?

    In macroeconomics, the interest rate plays a crucial role in delivering an equilibrium on the assets market by equating the ... Read Full Answer >>
  6. What is the correlation between inflation and interest rate risk?

    There is a positive correlation between inflation and interest rate risk. Inflation basically occurs when there is too much ... Read Full Answer >>
Related Articles
  1. Insurance

    Credit Scams To Watch Out For

    More than 30 million people were victims of fraud in 2007. Will you be next?
  2. Fundamental Analysis

    Analyzing A Bank's Financial Statements

    A careful review of a bank's financial statements can help you identify key factors in a potential investment.
  3. Forex Education

    Get To Know The Major Central Banks

    The policies of these banks affect the currency market like nothing else. See what makes them tick.
  4. Personal Finance

    Promissory Notes: Not Your Average IOU

    These may be a handy way to borrow money, but this convenience does not come without risk.
  5. Personal Finance

    How The Federal Reserve Was Formed

    Find out how this institution has stabilized the U.S. economy during economic downturn.
  6. Options & Futures

    Borrowing Smart In A Debt-Filled World

    Leveraging your money can have many perks, but it's not always the smartest financial plan.
  7. Personal Finance

    Are Markets Ready For An Interest Rate Hike?

    Despite financial market fears over the uncertainty of Greece’s debt crisis and the recent drop in China’s stock-market, Federal Reserve Chairwoman Janet Yellen has reaffirmed the Fed’s plans ...
  8. Home & Auto

    How the Fed Affects Reverse Mortgages

    An in depth look at how the Federal Reserve affects reverse mortgages.
  9. Economics

    Signs The U.S. Recovery Is Solid

    Many market observers lately have been making some pretty pessimistic evaluations of the U.S. economy, declaring that it’s stagnating and soft.
  10. Economics

    Regional Banks Give The Fed A National Perspective

    We all know that the Federal Reserve utilizes monetary policy to control the economy, but what do the 12 regional Federal Reserve Banks do?

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!