Discount Window

What is a 'Discount Window'

A discount window refers to 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.

BREAKING DOWN '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. Federal Discount Rate

    The interest rate set by the Federal Reserve that is offered ...
  2. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  3. Federal Reserve Credit

    Refers to the process of the Federal Reserve lending funds on ...
  4. Cost Of Funds

    The interest rate paid by financial institutions for the funds ...
  5. Credit Crisis

    A crisis that occurs when several financial institutions issue ...
  6. Key Rate

    The specific interest rate that determines bank lending rates ...
Related Articles
  1. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  2. Economics

    Fed's Discount Rate

    The Federal discount rate is the amount of interest a central bank charges private banks for short-term loans.
  3. Professionals

    Interest Rates

    Interest rates, put simply, are the cost of money. Overall interest rates are determined by the supply and demand for money, along with any upward price movement in the cost of goods and services, ...
  4. Economics

    What's the Federal Funds Rate?

    The federal funds rate is the interest rate banks charge each other for overnight loans to meet their reserve requirements.
  5. Economics

    The Federal Reserve: Monetary Policy

    The term monetary policy refers to the actions that the Federal Reserve undertakes to influence the amount of money and credit in the U.S. economy. Changes to the amount of money and credit affect ...
  6. Professionals

    Economic Policy And The Federal Reserve

    The government has two tools that it can use to try to influence the direction of the economy. Monetary policy, which is controlled by the Federal Reserve Board, determines the nation’s ...
  7. Forex

    The Fed

    The Fed's role on interest rates and the forex market
  8. Professionals

    Monetary Policy

    FINRA Series 6 Exam Study Guide - Monetary Policy. In this section, Monetary policy tools, money supply and interest rates. The role of the federal reserve board in monetary policy.
  9. Credit & Loans

    What is a Financial Institution?

    A financial institution is in business to, among other things, accept deposits, make loans, exchange currencies, and broker investment securities.
  10. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
RELATED FAQS
  1. How does the Federal Reserve determine the discount rate?

    Learn about the several different kind of discount rates offered to banks and other depository institutions through the Federal ... Read Answer >>
  2. What are the arguments in favor of setting a low discount rate?

    Read about some of the macroeconomic explanations that are used to justify setting a low interest rate at the Federal Reserve's ... Read Answer >>
  3. What's the difference between the prime rate and the discount rate?

    Learn more about the prime rate and the discount rate and how the Federal Reserve uses these rates in the U.S. economy. Explore ... Read Answer >>
  4. How does the Federal Reserve's set discount rate affect my personal finances?

    Discover how the Federal Reserve implements its chosen monetary policy through its discount rates, and how these actions ... Read Answer >>
  5. How do central banks impact interest rates in the economy?

    Learn how central banks such as the Federal Reserve influence monetary policy in the economy by increasing or decreasing ... Read Answer >>
  6. How does a high discount rate affect the economy?

    Find out what would happen if the Federal Reserve decided to set a very high discount rate, the rate at which banks can borrow ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center