Federal Reserve facility for direct loans to a financial institution with a deficiency in its reserve account. The term originated with the practice of sending a bank representative to a reserve bank teller window when a bank needed to borrow money. The discount window provides credit through discounts (actually, rediscounts) of notes and acceptances already accepted, and discounted by a bank, and advances that are collaterized by a bank's holdings of Treasury securities. Today, most Federal Reserve credit is in the form of advances, which are a more convenient way of borrowing. In 2003 the Federal Reserve relaxed its rules on direct loans to financial institutions. Financially sound banks can borrow directly from Federal Reserve Banks even if they have not exhausted other sources of funds.
place in the Federal Reserve where banks go to borrow money at the discount rateBorrowing from the Fed is a privilege, not a right, and banks are discouraged from using the privilege except when they are short of reserves.
place in the Federal Reserve where banks go to borrow money at the discount rate. Borrowing from the Fed has been a last resort for banks short of reserves, but in mid-2002, the Fed proposed encouraging direct loans to reduce volatility in the federal funds rate. Banks would be expected to use the "window" when Fed funds exceeded the Fed's target rate.
