General Information

The Discount Window

Last Updated: 06.07.2024         


Federal Reserve lending to depository institutions (the “Discount Window”) plays an important role in supporting the liquidity and stability of the banking system and the effective implementation of monetary policy. By providing ready access to funding, the Discount Window helps depository institutions manage their liquidity risks efficiently and avoid actions that have negative consequences for their customers, such as withdrawing credit during times of market stress. Thus, the Discount Window supports the smooth flow of credit to households and businesses. Providing liquidity in this way is one of the original purposes of the Federal Reserve System and other central banks around the world.

When the Federal Reserve System was established in 1913, lending reserve funds through the Discount Window was intended as the principal instrument of central banking operations. Although the Discount Window was long ago superseded by open market operations as the most important tool of monetary policy, it still plays a complementary role.

The purpose of this information is to clarify the policies that govern the use of Federal Reserve credit and describe Federal Reserve lending programs. Discount Window policies and programs have evolved in response to the changing needs of the economy and financial system. For Example, the primary and secondary credit programs replaced the adjustment credit and extended credit programs effective January 9, 2003. The primary credit program is the principal safety valve for ensuring adequate liquidity in the banking system and a backup source of short-term funds for generally sound depository institutions. Most depository institutions qualify for primary credit. Secondary credit is available to meet backup funding needs of depository institutions that do not qualify for primary credit. Seasonal credit is available to depository institutions that can demonstrate a clear pattern of recurring intra-yearly swings in funding needs. As always, Discount Window loans must be secured by collateral acceptable to the lending Reserve Bank.

Much of the statutory framework that governs Discount Window lending is contained in the Federal Reserve Act, as amended. The programs and policies that implement the statutory framework are set forth in Regulation A.


Types of Credit

Primary Credit

Secondary Credit

Seasonal Credit

Emergency Credit


Interest Rates on Primary, Secondary, and Seasonal Credit

By statutory requirement, each Federal Reserve Bank must establish its interest rates at least every 14 days, subject to review and determination by the Board of Governors. The interest rates complement changes in the FOMC's target for the federal funds rate and to achieve broad monetary policy goals. Reserve Banks currently establish interest rates for each of the three lending programs.

Because primary credit is the Federal Reserve's main Discount Window program, the Federal Reserve at times uses the term "discount rate" to mean the primary credit rate.


Eligibility to Borrow

By law, depository institutions that maintain reservable transaction accounts or nonpersonal time deposits (as defined in Regulation D) may establish borrowing privileges at the Discount Window. Eligibility to borrow is not dependent on or related to the use of Federal Reserve priced services.

U.S. branches and agencies of foreign banks that hold reserves are eligible to borrow under the same general terms and conditions that apply to domestic depository institutions. Foreign banks with more than one branch or agency operating in the United States may have access to the Discount Window in more than one Reserve District. Any Discount Window loans to those branches or agencies will be made by the Reserve Banks where the borrowing branches or agencies maintain accounts. Reserve Banks coordinate and monitor lending to such branches and agencies on a nationwide basis.

Bankers' banks, corporate credit unions, and other financial institutions are not required to maintain reserves under Regulation D, and so do not have regular access to the Discount Window. However, the Board of Governors has determined that such institutions may obtain access to the Discount Window if they voluntarily maintain reserves.


Restrictions on Lending to Undercapitalized Depository Institutions

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) amended the Federal Reserve Act to restrain extensions of Federal Reserve credit to an FDIC-insured depository institution that has fallen below minimum capital standards or has received a composite CAMELS rating of 5 (or its equivalent) from its federal regulator. Such depository institutions may request secondary credit, but Federal Reserve lending to a depository institution that is undercapitalized, significantly undercapitalized, or rated a composite CAMELS 5 (or its equivalent) is generally limited to 60 days in any 120-day period. Ordinarily, a depository institution that is critically undercapitalized may receive Discount Window credit only during the five-day period that begins on the day it becomes critically undercapitalized. Reserve Banks apply the same rules to depository institutions that are not insured by the FDIC but that are otherwise eligible to borrow at the Discount Window. For more information on this topic, see "FDICIA and the Discount Window" on page 975 of the November 1994 issue of the Federal Reserve Bulletin.

Any depository institution subject to one of the above-mentioned limits should maintain liquidity sufficient to keep its needs for Discount Window credit within appropriate bounds. If it appears that liquidity may prove inadequate, the depository institution should consult with its Federal Reserve Bank as far in advance as possible. Such consultations may also include discussions of collateral arrangements needed to ensure the orderly continuation of Federal Reserve payment services.


Arrangements for Borrowing

Any depository institution that expects to use the Discount Window should file the necessary lending agreements and corporate resolutions under the terms set forth in the Federal Reserve's lending agreement, Operating Circular No. 10. Depository institutions that do not envision using the Discount Window in the ordinary course of events are encouraged to execute the necessary documents because a need for Discount Window credit could arise suddenly and unexpectedly. Depository institutions also are encouraged to contact their local Reserve Bank to discuss collateral requirements and arrangements before a need to borrow arises.


Pledging of Collateral

All extensions of credit must be secured to the satisfaction of the lending Reserve Bank by collateral that is acceptable for that purpose. Most performing or investment grade assets held by depository institutions are acceptable as collateral. Collateral in which a special industry lender retains a superior legal interest is not acceptable. Reserve Banks require a perfected security interest in all collateral pledged to secure Discount Window loans.

Assets accepted as collateral can be found on the Collateral Eligibility page. Collateral is assigned a lendable value (market or an internally-modelled fair market value estimate multiplied by a margin) deemed appropriate by the Reserve Bank. The current collateral margins tables can be found on the Collateral Valuation page. The financial condition of a depository institution may be considered when assigning values.

Assignments of collateral are made by the borrower under the terms and conditions of the Federal Reserve Bank's lending agreement, Operating Circular No. 10. Refer to the Collateral pages for additional information about the Federal Reserve's Discount Window collateral program.

Arrangements for pledging collateral should be reviewed with the Reserve Bank. Securities issued by the U.S. government and most securities issued by U.S. government agencies are held in an automated book-entry records system at the Federal Reserve. Other securities pledged as collateral generally are held by a depository or other agent through a custodian arrangement. Loans (customer notes) pledged as collateral typically are held by a custodian or under a borrower-in-custody arrangement. Physical securities, promissory notes, and other definitive assets may, however, be held on the Reserve Bank's premises.


Posting of Discount Window Credits and Debits

Discount Window loan proceeds and loan repayments normally are posted after the close of Fedwire® . However, in those instances where a depository institution must make unanticipated payments during the business day, the Reserve Bank may post the loan during the business day and post the repayment at the same time on the date it is repaid.

On an exception basis, a borrower may repay a loan before 24 hours, or a multiple thereof, has passed. A need for early repayment might be associated with a borrower's need to obtain release of securities pledged as Discount Window collateral in time to permit same-day transfer, for example.

Intraday posting of Discount Window loans and repayments is subject to review and approval by the lending Reserve Bank.