Discount Window

AAA

DEFINITION of 'Discount Window'

Credit facilities in which financial institutions go to borrow funds from the Federal Reserve. These loans, which are priced at the discount rate, are often structured as secured loans to alleviate pressure in reserve markets. It helps to reduce liquidity problems for banks and assists in assuring the basic stability of financial markets.

INVESTOPEDIA EXPLAINS 'Discount Window'

The Federal Reserve has 3 rates that it charges financial institutions for using the discount window. The primary credit rate is a short-term rate charged for the most financially secure financial institutions. The secondary credit rate is a short rate that is charged for financial institutions that do not qualify for the primary rate. The seasonal credit rate is charged for debt obligations that last up to 9 months.

The Federal Reserve may lower the discount rate and/or make temporary changes to the terms of the loans in order to make the discount window a more attractive source for financial institutions to borrow from in times of financial distress.

RELATED TERMS
  1. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  2. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  4. Federal Reserve Credit

    Refers to the process of the Federal Reserve lending funds on ...
  5. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
  6. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
Related Articles
  1. The Federal Reserve
    Economics

    The Federal Reserve

  2. Successful Ways That Governments Reduce ...
    Economics

    Successful Ways That Governments Reduce ...

  3. 7 Misconceptions About The Federal Reserve
    Economics

    7 Misconceptions About The Federal Reserve

  4. The Treasury And The Federal Reserve
    Bonds & Fixed Income

    The Treasury And The Federal Reserve

comments powered by Disqus
Hot Definitions
  1. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  5. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  6. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
Trading Center