in generally sound financial condition and cannot obtain temporary funds in the market at reasonable terms. Large and medium-sized institutions are unlikely to meet this test. Credit credit is available to depository institutions that are not eligible for primary credit. It is extended on a very short-term basis, typically overnight. Reflecting the less-sound financial condition of borrowers of secondary credit, the rate on secondary credit has typically been 50 basis points above the primary credit rate, although the spread can vary as circumstances warrant. Secondary credit is available to help a depository institution meet backup liquidity needs when its use is consistent with the borrowing institution s timely return to a reliance on market sources of funding or with the orderly resolution of a troubled institution s difficulties. Secondary credit may not be used to fund an expansion of the borrower s assets. extended under the secondary credit program entail a higher level of Reserve Bank administration and oversight than loans under the primary credit program. A Reserve Bank must have sufficient information about a borrower s financial condition and reasons for borrowing to ensure that an extension of secondary credit would be consistent with the purpose of the facility. Moreover, under the Federal Deposit Insurance Corporation Improvement Act of 1991, extensions of Federal Reserve credit to an FDIC-insured depository institution that has fallen below minimum capital standards are generally limited to 60 days in any 120-day period or, for the most severely undercapitalized, to only five days. Credit Federal Reserve s seasonal credit program is designed to help small depository institutions manage significant seasonal swings in their loans and deposits. Seasonal credit is available to depository institutions that can demonstrate a clear pattern of recurring swings in funding needs throughout the year-usually institutions in agricultural or tourist areas. Borrowing longer-term funds from the discount window during periods of seasonal need allows institutions to carry fewer liquid assets during the rest of the year and make more funds available for local lending. seasonal credit rate is based on market interest rates. It is set on the first business day of each two-week reserve maintenance period as the average of the effective federal funds rate and the interest rate on three-month certificates of deposit over the previous reserve maintenance period. [See 14 p.29]
2.3 The Federal Reserve in the International Sphere
activities of the Federal Reserve and the international economy influence each other. Therefore, when deciding on the appropriate monetary policy for achieving basi...
