Federal Discount Rate – What is it?

Federal Discount Rate is the interest rate charged by a Federal Reserve Bank to its eligible member banks and financial institutions when they need to borrow funds directly from the Federal Reserve.  Banks whose reserves fall below the reserve requirement set by the Federal Reserve’s Board of Governors use that money to correct their shortage.  The board of directors of each Reserve Bank sets the Discount Rate every 14 days.  Borrowing from the Federal Reserve is generally considered a last resort option for banks, which usually borrow from each other. Keep Reading...