discount window

A Federal Reserve Bank’s lending facility through which a bank may borrow funds. The Federal Reserve gives loans to banks for short-term needs such as keeping sufficient reserves on deposit for overnight or over the weekend. Banks can borrow funds at the Federal Reserve’s discount rate, which is a below-market rate. The term derives its name from when Federal Reserve banks all had teller’s windows and at least one of them was the discount window. Bankers needing funds would bring their loans to their regional Federal Reserve Bank for discounting, which is selling loans for less than face value. Later, they would buy the loans back from the Federal Reserve at face value. The law has been changed to let the Fed lend money through advances that are collateralized by loans or securities.