Federal Reserve Credit

AAA

DEFINITION of 'Federal Reserve Credit'

Refers to the process of the Federal Reserve lending funds on a very short-term basis to member banks in order to meet their liquidity and reserve needs. By lending money to member banks, the Federal Reserve helps to maintain the steady flow of funds between consumers and bankings institutions.

Federal Reserve credit is most often extended by way of the "discount window," which is the Federal Reserves primary program of lending funds to member banks. The discount rate at which banks borrow depends on the creditworthiness of each bank, as well as the overall demand for funds at any given time.

INVESTOPEDIA EXPLAINS 'Federal Reserve Credit'

As complicated as the money system can appear, the concept of Federal Reserve credit is surprisingly simple. In essence, the Federal Reserve extends credit as a "swing loan" to get banks through short periods of time when their Federal Reserve requirements could not otherwise be met. It's important however, to not confuse these swing loans with any type of financial bailout. The Federal Reserve's routine procedure of lending to member banks is highly regulated and backed by the collateral of each bank borrowing the money.

RELATED TERMS
  1. Overnight Rate

    The interest rate at which a depository institution lends immediately ...
  2. Discount Rate

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

    The central bank of the United States and the most powerful financial ...
  4. Operation Twist

    The name given to a Federal Reserve monetary policy operation ...
  5. Federal Advisory Council

    A group of 12 banking executives - one from each Federal Reserve ...
  6. Discount Window

    Credit facilities in which financial institutions go to borrow ...
Related Articles
  1. Economics

    The Federal Reserve

  2. Forex Education

    Get To Know The Major Central Banks

  3. Bonds & Fixed Income

    The Fed's New Tools For Manipulating ...

  4. Forex

    How do central banks acquire currency ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center