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. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
Related Articles
  1. The Federal Reserve
    Economics

    The Federal Reserve

  2. Get To Know The Major Central Banks
    Forex Education

    Get To Know The Major Central Banks

  3. The Fed's New Tools For Manipulating ...
    Bonds & Fixed Income

    The Fed's New Tools For Manipulating ...

  4. How do central banks acquire currency ...
    Forex

    How do central banks acquire currency ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

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

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. 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. ...
  4. 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 ...
  5. 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. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center