Federal Reserve Discount Window

The **Federal Reserve discount window** is a lending facility through which eligible depository institutions borrow directly from a Federal Reserve Bank, generally by pledging collateral. It includes primary, secondary, and seasonal credit programs, each with separate eligibility rules and interest rates. The facility provides a source of liquidity to institutions and supports the stability of the U.S. banking system and the implementation of monetary policy. ^[1][2]

Purpose and administration

The discount window provides a way for eligible institutions to obtain funds from a Reserve Bank when they need liquidity. Ready access to funding can help an institution meet payment and funding obligations without taking steps that could affect customers, such as reducing lending during market stress. The Federal Reserve describes the window as supporting the smooth flow of credit to households and businesses as well as banking-system liquidity and stability. ^[1][2]

The facility is administered through the twelve regional Federal Reserve Banks. The Board of Governors oversees discount window operations and sets system-wide policy through rules and regulations, while the Reserve Banks conduct lending operations with institutions in their districts. Discount rates are established by Reserve Bank boards of directors, subject to review and determination by the Board of Governors; rates for each program are uniform across the Reserve Banks. ^[1][2]

The legal framework is principally set out in section 10B of the Federal Reserve Act and the Federal Reserve’s Regulation A. The term “discount window” reflects the historical authority to lend by discounting eligible paper. In contemporary practice, Reserve Bank credit is generally extended as an advance rather than through the purchase or discounting of a specific financial instrument. ^[1][3]

The discount window is distinct from emergency lending facilities created under other legal authority. For example, the Federal Reserve established the Bank Term Funding Program in March 2023 under section 13(3) of the Federal Reserve Act; that program was separate from ordinary discount window lending under section 10B. ^[6]

Lending programs

The discount window has three regular programs: primary credit, secondary credit, and seasonal credit. Each has its own eligibility standards and rate. The programs are designed for different institutional circumstances, so access to one does not automatically imply eligibility for another. ^[1][2]

### Primary credit

Primary credit is the main discount window program. It is generally available to depository institutions that the lending Reserve Bank judges to be in sound financial condition. Eligibility is assessed using supervisory information, including examination ratings and capitalization, and may also take account of other information. ^[2][3]

Primary credit is intended to be a readily available, short-term liquidity source. Institutions that have completed the required borrowing arrangements and pledged collateral generally request an advance by specifying the amount and term. The Federal Reserve states that there are no restrictions on how funds borrowed under primary credit may be used. Loans may be made overnight or for a term of up to 90 days; term loans may be prepaid, and their rate adjusts if the primary credit rate changes while the loan is outstanding. ^[2]

Since March 2020, the primary credit rate has been set at the top of the target range for the federal funds rate. The rate is set through the Reserve Bank and Board process rather than being a single, unchanging statutory rate. The discount rate therefore changes over time as policy and Reserve Bank rate decisions change. ^[2]

### Secondary credit

Secondary credit may be available to institutions that do not qualify for primary credit. It is intended as a backup source of short-term liquidity, typically overnight, and may also be used in circumstances where credit supports an orderly resolution of a troubled institution. Its use is subject to administrative requirements and conditions intended to be consistent with a timely return to market funding or another appropriate resolution. ^[3][4]

The secondary credit rate is higher than the primary credit rate. Federal Reserve materials describe the secondary credit rate formula as 50 basis points above the primary credit rate. Secondary credit therefore differs from primary credit in both the financial condition of eligible borrowers and the terms governing access. ^[4]

### Seasonal credit

Seasonal credit is designed for smaller depository institutions with recurring, predictable changes in funding needs during the year. Examples of possible seasonal patterns include fluctuations associated with agricultural activity or seasonal businesses, although eligibility depends on the institution’s demonstrated funding pattern and the program’s requirements. The Federal Reserve’s program description identifies institutions with deposits of $500 million or less as potentially eligible if they demonstrate clear recurring intra-year funding swings. ^[4]

Seasonal advances can help qualifying institutions meet predictable funding needs without maintaining as much liquidity throughout the year. The rate is floating and based on market rates; the Federal Reserve describes its formula as resetting every two weeks using the average of the effective federal funds rate and the three-month certificate-of-deposit rate over the preceding 14 days, rounded to the nearest five basis points. ^[4]

Eligibility, collateral, and borrowing arrangements

Eligibility to participate in discount window lending is generally tied to the Federal Reserve Act’s definition of depository institutions and applicable requirements. Potential participants include banks, credit unions, and other qualifying depository institutions; U.S. branches and agencies of foreign banks are also included in the Federal Reserve’s description of institutions with access to the facility. Participation is not the same as an unconditional entitlement to receive a loan: Reserve Banks are not obligated to extend credit to every institution, and statutory limits apply to lending to certain undercapitalized institutions. ^[2][3]

All discount window loans must be secured by collateral acceptable to the lending Reserve Bank. Eligible collateral may include a broad range of securities and loans, subject to Federal Reserve acceptance criteria and the institution’s ability to grant the Reserve Bank an enforceable security interest. The Reserve Bank assigns collateral values and applies margins, or haircuts, so that the amount available to borrow is generally lower than the collateral’s assessed value. Additional margins may apply to secondary credit collateral. ^[1][7][8]

Collateral does not necessarily become cash automatically when an institution signs up. Before borrowing, an institution must establish borrowing agreements with its regional Reserve Bank and arrange for collateral to be pledged and valued. The Federal Reserve encourages institutions to prepare in advance, including by pre-pledging collateral and conducting periodic transactions, because those steps can reduce operational delays if funding is needed quickly. ^[5][7]

Loan collateral can be pledged through arrangements such as the Borrower-in-Custody program, under which an institution may retain custody of eligible loans while pledging them to a Reserve Bank, subject to program conditions and controls. Securities may be pledged through supported securities settlement and custody arrangements. Specific eligibility, valuation, and operational procedures are maintained by the Federal Reserve Banks and may be updated. ^[7][8]

Rates and monetary policy

The primary credit rate is commonly referred to as the discount rate, although the term may also be used more broadly for discount window rates. The relationship between the primary credit rate and the Federal Open Market Committee’s target range connects the window to monetary policy implementation. The FOMC sets the target range for the federal funds rate, while the discount rate is established through the Reserve Bank and Board process. ^[2]

Discount window lending is not the Federal Reserve’s principal tool for adjusting the overall supply of reserves. Open market operations are the primary means of affecting the overall supply of reserves, while discount window lending provides credit to individual institutions, particularly when money markets are tight. In this way, the window can address funding pressures at particular institutions while operating alongside broader monetary policy tools. ^[3]

Use, stigma, and operational readiness

The Federal Reserve describes central bank credit as a backup funding source rather than a routine substitute for market funding. Even when institutions are eligible, they must decide whether and when to borrow, taking account of the applicable rate, collateral requirements, operational arrangements, and their own funding needs. The primary credit program has relatively minimal administrative requirements for routine overnight requests from qualifying institutions. ^[2][3]

An institution’s ability to access the window in practice depends partly on operational preparation. Required legal documents, established electronic access, collateral eligibility and valuation, and internal procedures can affect how quickly an advance can be arranged. Federal Reserve readiness guidance therefore recommends that institutions establish agreements, prepare collateral, and periodically test borrowing mechanics before an urgent need arises. ^[5][7]

The prospect that borrowing could be interpreted by markets or other parties as a sign of financial weakness is often discussed as “discount window stigma.” The Federal Reserve’s readiness guidance emphasizes maintaining operational readiness and undertaking transactions during normal times, measures intended to make access more practicable when needed. Public availability of transaction data is delayed, which also means that the public disclosure of a particular borrowing does not necessarily occur at the time it is made. ^[5][9]

Disclosure and public data

The Federal Reserve publishes transaction-level information about discount window lending under disclosure requirements established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The published records include borrower identity, dates credit was extended and repaid, interest rates, collateral information, and other relevant loan terms. The Board releases this transaction information quarterly with an approximately two-year delay. ^[9]

That reporting framework differs from data institutions may use internally or supervisors may receive in the ordinary course of oversight. Public transaction data allow later analysis of the facility’s use while preserving a lag between the borrowing and publication. ^[9]

Role in financial stress

The discount window can supply liquidity to individual institutions during periods of market strain, but it does not guarantee that an institution is solvent, prevent failure, or insure deposits. Its lending is collateralized and subject to eligibility and statutory requirements. Deposit protection in the United States is a separate function associated with the Federal Deposit Insurance Corporation and the applicable deposit-insurance framework. ^[1][3]

During the banking stresses of March 2023, the Federal Reserve stated that eligible institutions could obtain liquidity through the discount window, while also announcing the separate Bank Term Funding Program. The episode illustrates the distinction between standing discount window programs and temporary or emergency facilities introduced under different authorities. ^[6]

Related topics

The discount window is connected to the Federal Reserve’s broader institutional and policy framework, including the Federal Reserve System, its Board of Governors, the FOMC, and the federal funds rate. It also relates to bank liquidity management, collateral practices, deposit insurance, and emergency lending facilities. ^[1][2][6]