Discount Window

Discount window

Facility provided by the Fed enabling member banks to borrow reserves against collateral in the form of government securities or other acceptable paper.

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discount window

The lending facility of the Federal Reserve through which commercial banks borrow reserves. Federal Reserve policy toward supplying banks with reserves has a major effect on credit conditions and interest rates.

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Discount Window

An agency from which member banks of the Federal Reserve can borrow funds. Banks borrow short-term funds at the discount rate from the discount window, and must provide collateral for the transaction. The idea behind the discount window is to provide liquidity to banks when they need it without making them too reliant upon it. The Federal Reserve accomplishes this by raising or lowering the discount rate: a low interest rate indicates that it is trying to promote growth by making liquidity easily available, and a high interest rate shows that the Fed is concerned about inflationary pressures on the economy and trying to reduce the amount of money in the economy. While the discount window provides services electronically now, the term comes from an actual bank where representatives of member banks used to go to borrow money from the Federal Reserve.