The federal discount rate is the rate at which eligible banks or other depository institutions can borrow funds from a Federal Reserve bank. The rate is reviewed every 14 days.Banks are required to maintain cash reserves to handle liquidity concerns. When a bank lends out so much money that it’s unable to meet the minimum reserve requirement, it can borrow to make up the shortage from other banks, or from the Federal Reserve. Funds borrowed from the Fed are processed through the discount window. The discount rate influences the federal funds rate, which banks charge when they borrow from each other. The discount rate enables the Federal Reserve to control the money supply and stabilize financial markets. When the discount rate falls, it’s cheaper for commercial banks to borrow money. More loans are made, which increases the supply of money in the economy. When the discount rate climbs, it’s more expensive to borrow, leaving banks with less money to loan, and less money in the economy.