o be used to facilitate an orderly resolution of a failing institution. An institution obtaining credit in either situation must be monitored appropriately to ensure that it does not take excessive risks in an attempt to return to profitability and that the use of central bank credit would not increase costs to the deposit insurance fund and ultimately the taxpayer. ordinary circumstances, the Federal Reserve extends discount window credit to depository institutions under the primary, secondary, and seasonal credit programs. The rates charged on loans under each of these programs are established by each Reserve Bank s board of directors every two weeks, subject to review and determination by the Board of Governors. The rates for each of the three lending programs are the same at all Reserve Banks, except occasionally for very brief periods following the Board s action to adopt a requested rate change. The Federal Reserve also has the authority under the Federal Reserve Act to extend credit to entities that are not depository institutions in unusual and exigent circumstances ; however, such lending has not occurred since the 1930s. Credit credit is available to generally sound depository institutions on a very short-term basis, typically overnight. To assess whether a depository institution is in sound financial condition, its Reserve Bank regularly reviews the institution s condition, using supervisory ratings and data on adequacy of the institution s capital. Depository institutions are not required to seek alternative sources of funds before requesting occasional advances of primary credit, but primary credit is expected to be used as a backup, rather than a regular, source of funding. rate on primary credit has typically been set 1 percentage point above the FOMC s target federal funds rate, but the spread can vary depending on circumstances. Because primary credit is the Federal Reserve s main discount window program, the Federal Reserve at times uses the term discount rate specifically to mean the primary credit rate. Banks ordinarily do not require depository institutions to provide reasons for requesting very short-term primary credit. Borrowers are asked to provide only the minimum information necessary to process a loan, usually the requested amount and term of the loan. If a pattern of borrowing or the nature of a particular borrowing request strongly indicates that a depository institution is not generally sound or is using primary credit as a regular rather than a backup source of funding, a Reserve Bank may seek additional information before deciding whether to extend the loan. credit may be extended for longer periods of up to a few weeks if a depository institution is ...
