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Home > News & Events > Press Releases

Press Release
February 18, 2010

Federal Reserve approves modifications to the
terms of its discount window lending programs
For release at 4:30 p.m. EST
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The Federal Reserve Board on Thursday announced that in light of
continued improvement in financial market conditions it had unanimously
approved several modifications to the terms of its discount window
lending programs.
Like the closure of a number of extraordinary credit programs earlier this
month, these changes are intended as a further normalization of the
Federal Reserve's lending facilities. The modifications are not expected
to lead to tighter financial conditions for households and businesses and
do not signal any change in the outlook for the economy or for monetary
policy, which remains about as it was at the January meeting of the
Federal Open Market Committee (FOMC). At that meeting, the
Committee left its target range for the federal funds rate at 0 to 1/4
percent and said it anticipates that economic conditions are likely to
warrant exceptionally low levels of the federal funds rate for an extended
period.
The changes to the discount window facilities include Board approval of
requests by the boards of directors of the 12 Federal Reserve Banks to
increase the primary credit rate (generally referred to as the discount
rate) from 1/2 percent to 3/4 percent. This action is effective on February
19.
In addition, the Board announced that, effective on March 18, the typical

maximum maturity for primary credit loans will be shortened to
overnight. Primary credit is provided by Reserve Banks on a fully
secured basis to depository institutions that are in generally sound
condition as a backup source of funds. Finally, the Board announced
that it had raised the minimum bid rate for the Term Auction Facility
(TAF) by 1/4 percentage point to 1/2 percent. The final TAF auction will
be on March 8, 2010.
Easing the terms of primary credit was one of the Federal Reserve's first
responses to the financial crisis. On August 17, 2007, the Federal
Reserve reduced the spread of the primary credit rate over the FOMC's
target for the federal funds rate to 1/2 percentage point, from 1
percentage point, and lengthened the typical maximum maturity from
overnight to 30 days. On December 12, 2007, the Federal Reserve
created the TAF to further improve the access of depository institutions
to term funding. On March 16, 2008, the Federal Reserve lowered the
spread of the primary credit rate over the target federal funds rate to 1/4
percentage point and extended the maximum maturity of primary credit
loans to 90 days.
Subsequently, in response to improving conditions in wholesale funding
markets, on June 25, 2009, the Federal Reserve initiated a gradual
reduction in TAF auction sizes. As announced on November 17, 2009,
and implemented on January 14, 2010, the Federal Reserve began the
process of normalizing the terms on primary credit by reducing the
typical maximum maturity to 28 days.
The increase in the discount rate announced Thursday widens the
spread between the primary credit rate and the top of the FOMC's 0 to
1/4 percent target range for the federal funds rate to 1/2 percentage
point. The increase in the spread and reduction in maximum maturity will
encourage depository institutions to rely on private funding markets for
short-term credit and to use the Federal Reserve's primary credit facility
only as a backup source of funds. The Federal Reserve will assess over
time whether further increases in the spread are appropriate in view of
experience with the 1/2 percentage point spread.

Last Update: February 18, 2010

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