Fed changes rules governing Discount Window

Northwestern Financial Review, Dec 1-Dec 14, 2002

The Federal Reserve Board of Governors has approved a final rule that revises Regulation A - the Fed's discount window programs. The rule replaces adjustment credit, which currently is extended at a below-market rate, with a new type of credit called "primary credit." Reserve Banks will extend short-term, primary credit at a rate above the federal funds rate, which is intended to eliminate the incentive for institutions to borrow for the purpose of exploiting the positive spread of money market rates over the discount rate.

The Fed anticipates that the primary credit rate will initially be set at 100 basis points above the FOMC's target federal funds rate.