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Proposed revision to the Federal Reserve's discount window lending programs

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  • Brian F. Madigan
  • William R. Nelson
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    Abstract

    The Board of Governors' Regulation A currently authorizes the Federal Reserve Banks to operate three main discount window programs: adjustment credit, extended credit, and seasonal credit. On May 17, 2002, the Board published for public comment a proposed amendment to Regulation A that would establish two new discount window programs called primary credit and secondary credit as replacements for adjustment and extended credit. Primary credit would be available for very short terms, ordinarily overnight, to depository institutions that are in generally sound financial condition. Secondary credit would be available, subject to Reserve Bank approval and monitoring, for depository institutions that did not qualify for primary credit. The interest rate on primary credit would usually be above short-term market interest rates, including the federal funds rate, as opposed to the current situation in which the discount rate (the interest rate for adjustment credit) is typically below money market interest rates. Because of the above-market rate, the restrictions currently employed to limit access to adjustment credit will be unnecessary for primary credit. The primary credit program would be broadly similar to mechanisms adopted by many other major central banks to provide credit at the margin at an above-market rate.

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    Bibliographic Info

    Article provided by Board of Governors of the Federal Reserve System (U.S.) in its journal Federal Reserve Bulletin.

    Volume (Year): (2002)
    Issue (Month): Jul ()
    Pages: 313-319

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    Handle: RePEc:fip:fedgrb:y:2002:i:jul:p:313-319:n:v.88no.7

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    Keywords: Discount window ; Regulation A: Extensions of Credit by Federal Reserve Banks;

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    Cited by:
    1. Craig Furfine, 2004. "Standing facilities and interbank borrowing: evidence from the Federal Reserve’s new discount window," Working Paper Series WP-04-01, Federal Reserve Bank of Chicago.
    2. James T. E. Chapman & Antoine Martin, 2007. "Rediscounting Under Aggregate Risk with Moral Hazard," Working Papers 07-51, Bank of Canada.
    3. Klee, Elizabeth, 2010. "Operational outages and aggregate uncertainty in the federal funds market," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2386-2402, October.
    4. Patricia S. Pollard, 2003. "A look inside two central banks: the European Central Bank and the Federal Reserve," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 11-30.
    5. William Whitesell, 2006. "Monetary policy implementation without averaging or rate corridors," Finance and Economics Discussion Series 2006-22, Board of Governors of the Federal Reserve System (U.S.).
    6. ANTOINE MARTIN & JAMES McANDREWS, 2010. "Should There Be Intraday Money Markets?," Contemporary Economic Policy, Western Economic Association International, vol. 28(1), pages 110-122, 01.
    7. Milton Marquis, 2002. "Setting the interest rate," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct11.

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