Federal Reserve loan to a bank or a savings institution with insufficient reserves on hand to meet its legal reserve requirements. An increase in borrowed reserves signals tighter Federal Reserve credit policy and potentially higher interest rates for bank borrowers. When the Federal Reserve provides less credit to the banking system, banks must borrow to maintain the required reserves. These loans, in the form of an advance or discount by a Federal Reserve Bank, are normally collateralized by Treasury securities.
funds borrowed by member banks from a federal reserve bank for the purpose of maintaining the required reserve ratios. Actually, the proper term is net borrowed reserves, since it refers to the difference between borrowed reserves and excess or free reserves. Such borrowings, usually in the form of advances secured by government securities or eligible paper, are kept on deposit at the Federal Reserve bank in the borrower's region. Net borrowed reserves are an indicator of heavy loan demand and potentially tight money.
