Credit Risk Management
The discount window functions as a safety valve in relieving pressures in reserve markets, since extensions of credit can help relieve liquidity strains in depository institutions and in the banking system as a whole. The discount window also helps ensure the basic stability of the payment system more generally by supplying liquidity during times of systemic stress. To gain access to the discount window, depository institutions must have the agreements specified in operating circular 10 (OC-10) on file with their respective reserve bank. All discount window loans must be secured by acceptable collateral. Additional information can be found at the Federal Reserve Discount Window website.
The Payments System Risk function works to administer the Federal Reserve Board’s PSR policies for financial institutions in the Eighth District. The primary functions include:
- monitoring the use of intraday credit that is extended to Eighth District account holders,
- assisting institutions in complying with the Payments System Risk policy,
- monitoring overnight overdrafts in Federal Reserve master accounts and
- implementing special account controls when conditions warrant.
Discount window lending is administered in accordance with the Federal Reserve Act, Regulation A and various operating circulars. Federal Reserve credit is available to eligible banks, savings and loans and credit unions under three programs:
Primary Credit is available to financial institutions that Reserve banks deem to be in generally sound financial condition. Normally, primary credit will be granted on a "no questions asked" basis at a rate that is above the Federal Open Market Committee's target for the federal funds rate.
Secondary Credit is available to financial institutions that are not eligible for primary credit. The secondary credit rate is above the primary credit rate.Seasonal Credit is a longer-term program that is available to financial institutions with less than $500 million in total deposits and that experience yearly fluctuations in deposits and loans caused by seasonal businesses such as farming, construction or tourism. Institutions must formally apply for a seasonal credit line by completing an application which requires monthly historical deposit, loan, securities and fed funds data be submitted. If approved, the institution can then access its seasonal line as funding needs dictate. Lines are normally approved for up to nine months and advances borrowed up to 30 days at a time. Please refer to the Seasonal Credit brochure for more information about this program.
All Discount Window loans must be fully secured. Reserve banks accept a wide range of assets as collateral. General acceptance criteria for securities and loans, as well as a detailed list of eligible asset types, can be found in the Federal Reserve Collateral Guidelines or the Federal Reserve Discount Window website.
If your financial institution needs to establish a borrowing relationship with the St. Louis Fed, contact one of our credit analysts.