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Encouraging Banks to Lend Direct lending to banks: The Fed lowered the rate that it charges banks for loans from its discount window by 2
Encouraging Banks to Lend Direct lending to banks: The Fed lowered the rate that it charges banks for loans from its discount window by 2 percentage points, from 2.25% to 0.25%, lower than during the Great Recession. These loans are typically overnightmeaning that they are taken out at the end of one day and repaid the following morningbut the Fed extended the terms to 90 days. At the discount window, banks pledge a wide variety of collateral (securities, loans, etc.) to the Fed in exchange for cash, so the Fed takes little (or no) risk in making these loans. The cash allows banks to keep functioning, since depositors can continue to withdraw money and the banks can make new loans. However, banks are sometimes reluctant to borrow from the discount window because they fear that if word leaks out, markets and others will think they are in trouble. To counter this stigma, eight big banks agreed to borrow from the discount window in March 2020
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