Federal Discount Rate
The interest rate set by the Federal Reserve that is offered to eligible commercial banks or other depository institutions in an attempt to reduce liquidity problems and the pressures of reserve requirements. The discount rate allows the federal reserve to control the supply of money and is used to assure stability in the financial markets. Investopedia Says:
A decrease in the discount rate makes it cheaper for commercial banks to borrow money, which results in an increase in the supply of money in the economy. Conversely, a raised discount rate will make it more expensive for the banks to borrow, and would thereby decrease the money supply. Funds borrowed from the fed are processed through the discount window and the rate is reviewed every 14 days. Related Terms:
Discount Rate
Discount Window
Federal Reserve Bank - FRB
Federal Reserve System
Liquidity
Liquidity Squeeze
Loose Credit
Monetary Policy
Money Supply
Reserve Requirements |