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The discount window is an instrument of monetary policy (usually controlled by central banks) that allows eligible institutions to borrow money, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions. Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank Money supply Fiscal policy Spending Deficit Debt Trade policy Tariff Trade agreement Finance Financial market Financial market participants Corporate Personal Public Banking Regulation Monetary policy is the process by which the government, central bank...
Market liquidity is a business or economics term that refers to the ability to quickly buy or sell a particular item without causing a significant movement in the price. ...
The interest rate charged on such loans by central bank is called the discount rate, base rate, repo rate or primary rate. It is distinct from the federal funds rate or its equivalents in other currencies, which determine the rate at which banks lend money to each other. In recent years the discount rate has been approximately a percentage point above the federal funds rate (see Lombard credit). Because of this, it is a relatively unimportant factor in the control of the money supply, and is only taken advantage of at large volume during emergencies. An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ...
The federal funds rate is the interest rate at which private depository institutions lend balances (federal funds) at the Federal Reserve to other depository institutions overnight. ...
Lombard credit is the granting of credit by banks against pledged items, mostly in the form of securities or life insurance policies. ...
This article or section does not cite any references or sources. ...
In the United States, there are actually several different rates charged to institutions borrowing at the Discount Window: currently the primary credit rate (the most common), the secondary credit rate (for banks that are less financially sound), and the seasonal credit rate. Primary and secondary credit is normally offered on a secured overnight basis, while seasonal credit is extended up to nine months. The primary credit is normally set 100 bp above the federal funds target and the secondary credit credit rate 50 bp above the primary rate. The seasonal credit rate is set from an averaging of the effective fed funds rate and 90 day CD rates. On August 17, 2007, the Board of Governors of the Federal Reserve announced (http://www.federalreserve.gov/boarddocs/press/monetary/2007/200708172/default.htm) a temporary change to primary credit lending terms. The rate was cut from 100 bp above the funds target to 50 bp -- to 5.75% from 6.25% -- and the term of loans was extended from overnight to up to thirty days. 2006 is a common year starting on Sunday of the Gregorian calendar. ...
After the terrorist attacks on September 11, 2001, as the volume of borrowing requests increased dramatically, lending to banks through the discount window totaled about $46 billion, more than two hundred times the daily average for the previous month. The flood of funds released into the banking system reduced the immediate need for banks to rely on payments from other banks to make the payments they themselves owed others. This kept liquidity alive in the economy despite interruptions of communications and cash flow between banks.
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