Frequently Asked Questions

There are multiple ways that depository institutions can monitor the value of their pledged collateral on an ongoing basis:

• For depository institutions enrolled in Discount Window Direct (DWD), collateral value is shown as "Discount Window Total Collatera"
• Depository institutions that pledge collateral can request from their local Reserve Bank to periodically receive a Statement of Collateral Holdings via secure email which details collateral values; or
• Collateral value can be viewed on Account Management Information (AMI) in the "View Collateral Balances" tab under the "Collateral Reports" section.

A minimal risk rating is typically equivalent to investment grade, while a normal risk rating is typically equivalent to below investment grade. The minimal/normal risk distinction is available for non-consumer loans. A depository institution can contact its local Reserve Bank to discuss how the minimal/normal risk ratings are applied to its pledged loans.

The Loan Collateral Schedule section of the Pledging Collateral page contains information related to preparing and transmitting collateral schedules, such as the necessary data fields and their corresponding definitions, the required format and approved transmission methods. If a depository institution has any questions regarding this information, it can contact its local Reserve Bank.

Missing information in required loan fields will result in a pledged loan automatically receiving zero collateral value. This occurs when information is missing for Balance, Interest Rate, Maturity Date, Internal Risk Rating, FX/FL Flag, Interest Rate Spread, Credit Bureau Score Current (credit cards only) and APR (credit cards only). The listed required fields are non-exclusive and may be expanded at the discretion of the Reserve Banks. Contact your local Reserve Bank for further information on missing loan fields.

The Reserve Banks utilizes the same model to derive values for all pledged loans. Out-of-scope depository institutions will receive collateral value based on the loan data fields they report to the Reserve Banks. For the additional loan fields that are not reported, the Reserve Banks rely on data provided by in-scope institutions.

Yes. Reserve Banks accept pledges of subprime mortgages and other subprime consumer debt that is performing and meets the eligibility criteria stated on the Collateral Eligibility page. This also includes debt obligations containing subprime mortgages if they meet Reserve Bank eligibility requirements, including credit quality and tranche type. AAA-rated collateralized debt and mortgage obligations are examples of acceptable structured debt obligations.

Yes. Loans with electronic signatures in lieu of “wet ink” signatures may be pledged as collateral, subject to Reserve Bank standards. Contact your local Reserve Bank for further information.

Yes. Loans that are signed on paper and then imaged and electronically stored with the original paper copy destroyed may be pledged as collateral. Some restrictions may apply based on the applicable law(s). Contact your local Reserve Bank for further information.

A modification of a pledged loan is deemed to be a new origination unless the modification of the loan terms is contemplated in the original loan documents such as, a change in the interest rate upon a certain event. A modification may include, but is not limited to, changes to the following loan data elements: collateral type, interest rate, maturity date, origination date, original balance/commitment. In general, modifications will require the pledging depository institution to report updated values for all relevant loan data elements as of the modification date (e.g. the modification date would be the new Origination Date). Please review the In-scope File Format Specifications and Definitions document for information on how to report new originations on a collateral schedule or contact your local Reserve Bank for additional details.

With respect to loans that have been modified, modifications that contain imaged or electronically created signatures (rather than "wet ink" signatures) may be eligible to be pledged. Contact your local Reserve Bank for further information. 

Yes. Loans guaranteed by the SBA may be pledged as collateral, as described in the Collateral Eligibility page.

There are no restrictions on the use of funds borrowed under the primary credit program.

There are restrictions on the use of funds borrowed under the secondary credit program. Secondary credit is available to meet backup liquidity needs when its use is consistent with a timely return by the depository institution to a reliance on market sources of funding or the orderly resolution of a troubled institution. Secondary credit may not be used to fund an expansion of the depository institution's assets.

Seasonal credit is not permitted to be used to increase sales of federal funds or to purchase other assets. However, net sales of federal funds are appropriate, as long as they are consistent with the depository institution's normal operating pattern. The maximum levels of net fed funds sales and investments allowed while borrowing under the program are established during the qualification process.

Primary credit is limited to depository institutions that are in generally sound financial condition as determined by the Reserve Bank. Reserve Banks determine eligibility on an ongoing basis generally using supervisory ratings and capitalization data, as well as other factors and sources of information. Depository institutions that do not qualify for primary credit may be eligible for secondary credit. Depository institutions' eligibility for primary credit and secondary credit is reassessed as new information about their condition becomes available.

Depository institutions that have executed and submitted the OC-10 agreements with the Reserve Bank will be notified promptly if their eligibility changes.

Yes, on a delayed basis. The Board of Governors is required by law to publicly disclose the following information about primary, secondary and seasonal credit advances, generally about two years after a discount window advance is extended to a borrower:

o The name and identifying details of the depository institution.
o The amount borrowed by the depository institution.
o The interest rate paid by the depository institution; and
o Information identifying the types and amounts of collateral pledged in connection with any discount window advance. This disclosure requirement does not apply to collateral pledged by depository institutions that do not borrow.
This information is released quarterly. 

The Federal Reserve may be required to publicly disclose information about borrowers of emergency credit facilities more frequently.

No. The Federal Reserve does not publish information regarding depository institutions' current eligibility for primary, secondary, or seasonal credit. Federal law requires the Federal Reserve to publicly disclose, on a delayed-basis, information on discount window advances including the interest rate paid on the advances made by Reserve Banks.

The Federal Reserve does not routinely share information about institutions' borrowing activities with bank regulators. If requested, the Federal Reserve Banks will provide each regulator a list showing the depository institutions supervised by that regulator that have executed borrowing agreements with a Reserve Bank and identify which depository institutions have pledged collateral. Bank regulators may obtain information about a depository institution's borrowing activities in connection with a potential supervisory problem.

Proceeds of approved discount window advances are normally made available at the close of Fedwire Funds Service and FedNow Service (usually 7:00 pm EST) on the day the advance is requested and processed by the Reserve Bank. 

The repayment of advances will be posted on the maturity date of the advance or may be posted earlier if a depository institution requests to make an early payment. Repayments generally post at the same time of day the funds were made available to the depository institution at origination.

Yes.  Depository institutions may prepay all or a portion of the principal of discount window advances prior to maturity with no prepayment fees or penalties.  To prepay an advance, depository institutions can submit a request through Discount Window Direct (DWD), or an authorized individual can call the depository institution’s local Reserve Bank.

Yes. If a depository institution qualifies for seasonal credit advances, it can choose to utilize the seasonal credit program rather than the primary credit program.

The amount of interest charged on advances is the applicable rate in effect at the time the advance is made. If the applicable rate changes while an advance is outstanding, the new rate will apply to the unpaid balance on and after the effective date of the change.
 
Interest on advances is due and payable at maturity, or when full or partial repayment of principal on the advance is requested. At maturity or repayment, the remaining principal and accrued interest will be automatically charged to the depository institution's Reserve Bank account or the designated correspondent's Reserve Bank account.

If a depository institution fails to meet any collateralization requirement while advances are outstanding, it will need to either pledge additional collateral to cover the shortfall or pay down some or all of the outstanding advances.

As announced on March 15, 2020, the Reserve Banks have waived their rights to require repayment on demand for a term primary credit loan with a remaining maturity of more than 30 calendar days, as provided in section 5.1(a) of OC-10.  The Reserve Banks retain all other remedies under OC 10, including but not limited to calls to cure collateral deficiencies and remedies upon the occurrence of an event of default, such as accelerating the loan should the depository institution cease to qualify for primary credit or become insolvent. Additional information is available in the 'Notice of Availability of Term Advances and Applicable Terms ("Terms")' document.

A depository institution’s net debit cap refers to the maximum amount of uncollateralized daylight overdrafts that it may incur in its Reserve Bank account in compliance with the Federal Reserve Policy on Payment System Risk (PSR policy). Each institution that has a Reserve Bank account is assigned a net debit cap. An institution that maintains a positive net debit cap has the option to apply for a higher net debit cap category. The sample resolutions for each cap type are located in the Model Resolutions 1-3 of Appendix B of the PSR Guide. Completed resolutions should be sent to the institution’s local Reserve Bank.

Depository institutions may not incur daylight overdrafts above the amount of their net debit cap. The Overview and Guide to the PSR Policy explain how net debit caps are calculated. 

A daylight overdraft occurs when a depository institution's Reserve Bank account has a negative balance at any point during the business day. Daylight overdrafts, also referred to as intraday credit, are governed by part II of the Federal Reserve Policy on Payment System Risk (PSR policy). See the Overview of the Federal Reserve's Payment System Risk Policy and Guide to the Federal Reserve's Payment System Risk Policy for additional information.

The Reserve Banks use a schedule of posting rules, identified in the PSR policy, to determine whether a daylight overdraft has occurred in a depository institution’s Reserve Bank account and if that overdraft constitutes a violation of the PSR policy. The daylight overdraft posting rules define the time of day that debits and credits for transactions processed by the Reserve Banks will post to a depository institution's Reserve Bank account. The Reserve Banks measure a depository institution’s daylight overdraft activity, monitor its compliance with the PSR policy, and calculate daylight overdraft charges on an ex-post basis.

Depository institutions with regular access to the discount window may incur daylight overdrafts. Depository institutions that do not have regular access to the Discount Window are not permitted to incur daylight overdrafts. The Reserve Bank may also limit access to intraday credit for any depository institutions that present increased risks, such as depository institutions in weak financial condition or depository institutions incurring overdrafts in violation of the PSR policy.

Each depository institution incurring uncollateralized daylight overdrafts in its Reserve Bank account  must adopt a net debit cap ("cap"), which limits the total uncollateralized daylight overdrafts that it may incur during any given day.  A depository institution's cap category and its capital measure determine the dollar amount of its net debit cap. In addition to their net debit cap, depository institutions may be eligible to obtain additional collateralized daylight overdraft capacity. The resulting combination of uncollateralized and collateralized capacity is known as the maximum daylight overdraft capacity or “max cap.”

No. Under the Federal Reserve Policy on Payment System Risk (PSR policy), collateralization of daylight overdrafts by healthy depository institutions is voluntary.  Any collateral that a depository institution has pledged to its Reserve Bank that is not securing an advance or other obligation, such as a discount window loan, will automatically be applied to offset the depository institution's daylight overdraft fees.

The Reserve Banks calculate and assess daylight overdraft charges on the basis of a two-week maintenance period as follows:
• A zero fee applies to collateralized daylight overdrafts for depository institutions with access to the Discount Window.
• A 50-basis point (annual rate) fee applies to uncollateralized daylight overdrafts for depository institutions with access to the Discount Window, A fee waiver of $150 is subtracted from the gross fees of such depository institutions.
• A 150-basis point (annual rate) penalty fee (at a minimum of $25) is assessed for daylight overdrafts incurred by depository institutions that do not have access to the Discount Window.
For more information on how the Federal Reserve calculates daylight overdraft fees, see the Overview of the Federal Reserve's Payment System Risk Policy or the Guide to the Federal Reserve's Payment System Risk Policy.

The Federal Reserve expects depository institutions that maintain Reserve Bank accounts to monitor their account balances on an intraday basis in order to comply with the Federal Reserve Policy on Payment System Risk (PSR policy). Depository institutions should be aware of the payments made from their accounts each day and sufficiently fund them. Depository institutions are expected to use their own systems and procedures, as well as the Federal Reserve's systems, to monitor their account balance and payment activity. Depository institutions are also expected to maintain procedures to manage their accounts in contingency situations and during periods of service disruptions. Daylight overdrafts that result in overnight overdrafts are strongly discouraged and subject to an overnight overdraft penalty fee outlined in part III of the Federal Reserve Policy on Payment System Risk (PSR policy).