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FEDERAL RESERVE BANK ©F MEW YOREC Circular No. 10,<046 [ June 11, 1986 ] DISCOUNT MATES To All Depository Institutions in the Second Federal Reserve District: Effective June 10, 1986, the directors of this Bank, with the approval of the Board of Gover nors of the Federal Reserve System, established a new discretionary discount rate for unusually large adjustment credit borrowings that result from major operating problems at the borrowing insti tution. The following statement was issued by the Board of Governors of the Federal Reserve System regarding this change: T h e F ed eral R ese rv e B oard has a n n ou n ced a n ew p o lic y to d ea l w ith e x c e p tio n a lly large borrow ings from the discount w in dow that arise from com puter breakdow ns or other operating problem s associated w ith the paym ents m echanism . U nder the n ew p o licy , a rate higher than the b asic d iscount rate w ill b e applied to loans o f unusual size w hich result from a major operating problem at the borrow er’s fa cility , u n less the problem is clearly beyond the reasonable control o f the institution. The rate to be charged w ill be the highest rate w ithin the stm cture o f d iscount rates at that tim e. A lthough the current basic discount rate is 6 V2 percent, the highest rate posted by the Federal R eserve is n ow 8 V2 percent w hich can apply to extended credit borrow ings outstanding for m ore than 150 days. This action w ill assure that in extraordinary circum stances arising from com puter breakdow ns or other operating p roblem s, credit extended by the Federal R eserve w ill be at rates as high as or higher than those prevailing for short-term accom m odation in the open market. The n ew p o licy w ill encourage institutions to maintain or put in p lace the appropriate m easures and precautions to reduce the chances that any major problem s m ight d evelop . A copy of this Bank’s Operating Circular No. 13, regarding discount rates, is enclosed. E . G e r a l d C o r r ig a n , President. F ederal R eserve Bank of Mew Y ork [ O perating Circular No. 13 Revised effective June 10, 1986 DISCOUNT RATES To All Depository Institutions in the Second Federal Reserve District: 1. This Bank has made the following change in its rate schedule, effective June 10, 1986: The rate schedule has been amended to provide that, in the case of ad justment credit loans determined by this Bank to be unusually large and to arise from a major operating problem at the borrowing institution, this Bank, at its discretion, may charge the highest rate it has estab lished for loans to depository institutions. Shown on the reverse side is the schedule of rates now in effect at this Bank on advances and discounts made under the Federal Reserve Act. 2. This circular supersedes our Operating Circular No. 13, revised effec tive April 21, 1986. E. G erald Corrigan , President. [Enc. Cir. No. 10,046] (OVER) Rate Schedule Effective Ju n e 10, 1986 Percent Per Annum Advances to and discounts for depository institutions: (a) Advances of adjustment and seasonal credit and discounts under sections 13, 13a, and 10(b) of the Federal Reserve A ct................................................ 6 V2 * Not more than 60 days................................................ 6 V2 More than 60, but not more than 150, days.................. IV2 More than 150 d ay s.................................................... 8 V2 (b) Advances under section 10(b) of the Federal Reserve Act of extended credit (i) to institutions under sustained liquidity pressures, or (ii) for special circumstances, where credit has been outstanding (including extensions and renewals) for the following periods :t (c) Advances under temporary simplified seasonal credit program pursuant to sections 13 and 10(b) of the Federal Reserve Act........................................................ $ * In the case of adjustment credit loans determined by this Bank to be unusually large and to arise from a major operating problem at the borrowing institution, this Bank, at its discretion, may charge the highest rate it has established for loans to depository institutions. t In the case of extended credit that is expected to be outstanding for unusually long periods and in relatively large amounts, the time period for each rate in the extended credit rate structure may be short ened at the discretion of the Federal Reserve Bank of New York. Also, a flexible rate that takes into account rates on market sources of funds may be applied to any extended credit outstanding for pro longed periods. Under the program, the borrower has the option of borrowing (i) at the basic discount rate in effect during the period the loan is outstanding (if the discount rate changes during this period, the rate charged on the loan changes accordingly), or (ii) at a rate that, during the time the credit is outstanding, will remain fixed at one-half percentage point higher than the basic discount rate in effect at the time of the loan. No credit under this program will mature later than February 28, 1987, nor will such credit be extended subsequent to September 30, 1986. $
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