How does the Fed's discount window work?

#What is the discount window, in plain words?

Banks sometimes need cash quickly — for example when many customers withdraw money at once, or when payments going out on a given day exceed payments coming in. The Federal Reserve's answer is the discount window: Federal Reserve Banks extend credit to banks, credit unions and other depository institutions through ordinary lending programmes, collectively called the discount window⁠^[1]. The Fed says the window plays an important role in supporting the liquidity and stability of the banking system⁠^[1].

It is a loan, not a gift. Discount window advances must be secured by collateral acceptable to the Reserve Bank⁠^[1], and the borrower pays interest at the discount rate. Why a bank can be short of cash at all comes down to how banks work: they keep only a small part of deposits as liquid assets, as the IMF explains⁠^[2]. Our guide to how banks make money covers that balance sheet in more detail.

#What are primary, secondary and seasonal credit?

The Fed runs three lending programmes through the window. An institution can qualify for primary credit if it is in generally sound financial condition, and primary credit loans are available on an overnight basis or for a period up to 90 days⁠^[3]. Secondary credit is available to institutions that are not eligible for primary credit, at a higher rate⁠^[3]. Seasonal credit helps small institutions manage seasonal swings in their balance sheets, at a rate that averages selected market rates⁠^[3].

#Who sets the discount rate, and what changed in September 2026?

Discount rates are established by each Reserve Bank's board of directors, subject to the review and determination of the Board of Governors⁠^[3]. The Board stresses that this process is distinct from the way the Federal Open Market Committee sets the target range for the federal funds rate⁠^[5], although since March 2020 the primary credit rate has been set at the top of that target range⁠^[3].

The minutes released on October 13, 2026 show how that played out. On August 17 and September 9 the Board kept the primary credit rate at 3.75%, taking no action on requests from several Reserve Banks to raise it to 4%⁠^[4]. On September 16, the day the FOMC raised its target range to 3-3/4 to 4 percent⁠^[6], the Board approved an increase in the primary credit rate from 3.75 percent to 4 percent, effective September 17, 2026⁠^[4].

#How much does a discount window loan cost?

The cost is simply interest at the discount rate on the amount borrowed for the time borrowed. The example below uses the 4% primary rate and the secondary rate 50 basis points above it⁠^[4]. A basis point is one hundredth of a percentage point.

For the bank, the useful comparison is with other ways of raising cash quickly, such as borrowing from other banks or selling securities. For you as a customer, the rate matters indirectly: the discount window is part of what lets a sound bank meet withdrawals and outgoing payments on a busy day. Payments themselves move over systems like Fedwire and FedNow, explained in ACH vs wire vs instant payments.

#Is borrowing from the discount window secret?

Not permanently. The Board is required by law to publicly disclose the identity of discount window borrowers, generally about two years after an advance is extended, including the name and identifying details of the depository institution⁠^[7]. The delay means customers cannot see in real time which bank is borrowing.