Getting Started
Last Updated: 06.07.2024
This page is for those unfamiliar with the Discount Window. The following information will explain the basic principles and regulations that govern the Discount Window, the application process for access to Federal Reserve credit, and the different types of credit arrangements offered by the Discount Window.
Information on Federal Reserve Credit & the Discount Window
What is the Discount Window?
The Discount Window is an instrument of monetary policy that allows eligible depository institutions to borrow money, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions.
What legislation & regulations provide depository institutions access to the Discount Window?
Access to the Discount Window was established through legislation passed by congress in 1913 and incorporated in the Federal Reserve Act. Regulation A: Loans to Depository Institutions governs borrowing by depository institutions at the Discount Window and provides guidelines for lending under the Discount Window programs.
Applying for Discount Window Access
What documentation & legal agreements are necessary to set up a relationship with the Discount Window?
Operating Circular No. 10 is the lending agreement and promissory Note for Federal Reserve advances. It sets forth the terms under which Reserve Banks will extend credit to a depository institution and the specific procedures to be followed with such an extension. The circular specifies the legal documents that must be filed before a depository institution can borrow from the Discount Window.
Required legal documents include:
- Letter of Agreement
- Authorizing Resolutions for Borrowers
- Certificate
- Official Authorization List
Other agreements are included in Operating Circular No. 10 for special circumstances, such as correspondent relationships and custodial collateral arrangements.
Where do I submit the completed documents?
Completed documents should be sent the Discount Window staff at your local Reserve Bank.
Credit Programs Offered Through the Discount Window
What type of credit arrangements are available through the Discount Window?
- Primary credit is available to generally sound depository institutions on a very short-term basis, typically overnight, at a rate above the Federal Open Market Committee's target rate for federal funds. Because primary credit is the Federal Reserve's main Discount Window program, the Federal Reserve at times uses the term "discount rate" to refer to the primary credit rate.
- Secondary credit is available to depository institutions that are not eligible for primary credit. It is extended on a very short-term basis, typically overnight, at a rate that is above the primary credit rate. Secondary credit is available to meet backup liquidity needs when its use is consistent with a timely return to a reliance on market sources of funding or the orderly resolution of a troubled depository institution.
- Seasonal credit is designed to assist small depository institutions in managing significant seasonal swings in their loans and deposits. Seasonal credit is available to depository institutions that can demonstrate a clear pattern of recurring intra-yearly swings in funding needs.
- Emergency credit may be available in unusual and exigent circumstances. The Board of Governors may authorize a Reserve Bank to provide emergency credit to a participant in a program or facility with broad-based eligibility.
Collateral
Are there collateral requirements relating to Discount Window Loans?
All loans must be secured by collateral acceptable to the Reserve Bank. For more information, see the relevant Collateral webpage.
Borrowing
How does a depository institution request an advance from the Discount Window?
Use Discount Window Direct or call your local Reserve Bank:
There are two ways to request an advance: Use Discount Window Direct (DWD), a self-service application; or call your local Reserve Bank. An Authorized Borrower listed on the depository institution's Appendix 3/4 Form of Authorizing Resolution for Borrowers or the Appendix 3/4 Form of OC-10 Official Authorization List on file will need to request the advance.
Be prepared to supply the following:
Information Required for All Discount Window Advances
- Name and location (city and state) of the depository institution.
- The depository institution's ABA and telephone numbers.
- Your name and title. If the depository institution's borrowing resolution requires that two people request a Discount Window loan, please have a second authorized individual available.
- The amount you are requesting.
- The maturity date of the loan.
- Primary credit can be extended for periods as long as 90 days.
- Secondary credit is typically extended on an overnight basis.
Information Required for Loan Requests by Type of Credit
- Primary Credit requires minimal information associated with a loan request.
- Secondary Credit requires additional information:
- The reason for borrowing.
- Any additional information necessary to confirm that borrowing is consistent with the objectives of the program.
- Seasonal Credit is available to depository institutions with an approved seasonal line of credit and no additional information is needed at the time of a loan request.
Who is authorized to borrow?
Your depository institution must specify who is authorized to borrow funds in the legal agreements submitted in order to obtain access to the Discount Window. The Appendix 3/4 Form of Authorizing Resolution for Borrowers and the Appendix 3/4 Form of OC-10 Official Authorization List on file contain the name(s) of the individual(s) who are authorized. In some cases, more than one person may be required to authorize an advance.
What are the permissible terms of Discount Window loans?
The permissible term of a Discount Window loan varies by the type of credit.
- Primary Credit is extended for periods as long as 90 days to depository institutions in generally sound financial condition.
- Secondary Credit is generally extended on a very short-term basis, typically overnight. It may also be extended for a longer term if such credit would facilitate a timely return to reliance on market funding or the orderly resolution of a failing depository institution, subject to statutory requirements (FDICIA restrictions).
- Seasonal Credit may be granted for a period of up to nine months of seasonal need during the calendar year with advances maturing on a monthly basis.
How is borrowing repaid?
An advance is issued with a stated maturity date. Discount Window loans must be repaid by the maturity date. Repayment of principal and accrued interest is charged to the account to which the loan was posted. Details on use of a correspondent account for loan and payment debits and credits are contained in Appendix 5 of Operating Circular No. 10
May a depository institution prepay a multi-day advance?
Multi-day advances can be prepaid in whole or in part at the borrowing depository institution's option. Interest on an advance is due and payable to the lending Reserve Bank at maturity or when repayment of principal on the advance is requested.
There are two ways to prepay a multi-day advance: Use Discount Window Direct (DWD), a self-service application; or call your local Reserve Bank.
An Authorized Borrower listed on the depository institution's Appendix 3/4 Form of Authorizing Resolution for Borrowers or the Appendix 3/4 Form of OC-10 Official Authorization List on file will need to execute the prepayment. You should be prepared to supply the following information:
- Name and location (city and state) of the depository institution
- Depository institution's ABA
- Authorized borrower(s’) name(s), title(s), and contact number(s)
- Amount of the prepayment being requested
Prepayment amounts will be applied sequentially to the loans that have been outstanding the longest.