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.

BREAKING DOWN '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 Credit

    Refers to the process of the Federal Reserve lending funds on ...
  2. Free Reserves

    Free reserves are the reserves a bank holds in excess of required ...
  3. Reserve Ratio

    The portion (expressed as a percent) of depositors' balances ...
  4. Net Borrowed Reserves

    A statistic released in weekly Federal Reserve data showing the ...
  5. Federal Funds

    Excess reserves that commercial banks deposit at regional Federal ...
  6. Excess Reserves

    Capital reserves held by a bank or financial institution in excess ...
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