Money & Finance › The Fed, money supply & inflation › The Federal Reserve System (the Fed)
The discount window: lender of last resort
Since 1914· Institution or agency
Fact, law or dataA rule, statute, definition or measured number.
The Fed's direct lending to banks against collateral, the backstop when a bank suddenly needs cash.
See it on the Money & Finance map →How it works
Each regional Reserve Bank lends to banks overnight or for up to 90 days against collateral such as loans and bonds. Since 2020 the main 'primary credit' rate has equaled the top of the fed funds target range. It follows Walter Bagehot's 1873 crisis rule: lend freely, against good collateral, at a penalty rate. Banks shy away because borrowing can signal weakness, yet use hit a record of about $153 billion in March 2023 after Silicon Valley Bank failed.
Why it matters
A lender of last resort lets a solvent but cash-short bank survive a run without dumping assets at fire-sale prices, the problem that turned 1800s panics into depressions.
Think of it like
Like a pre-arranged credit line secured by the property: you hope never to draw on it, but it keeps a cash crunch from becoming a foreclosure.
Facts, rules and data
The Fed reports discount window totals weekly and, under Dodd–Frank, names each borrower about two years later; Bagehot's book Lombard Street (1873).
Debates and risks
How to remove the stigma so banks borrow before panic sets in is unresolved; since 2023 regulators have urged banks to pre-pledge collateral and test access.
Connections (2)
▸The discount window: lender of last resort is designed to stop Bank runs: when depositors all want out at onceFact, law or data
The connection
A run forces a bank to raise cash fast, often by dumping loans or bonds at a loss. The discount window lets a solvent bank pledge those assets to the Fed for cash instead, paying depositors without a fire sale. Ideally, knowing the backstop exists keeps depositors calm in the first place.
When and why
Federal Reserve Banks since 1914, after the Panic of 1907 showed private rescues were not enough; heavily used in 2008 and March 2023.
How we know
Discount window borrowing hit records during the 2008 crisis and again, about $153 billion, in March 2023 as runs hit regional banks.
Debates and risks
It did not save Silicon Valley Bank, which was not set up to borrow quickly; stigma and slow collateral checks remain known weak points.
▸The discount window: lender of last resort was tapped heavily during Silicon Valley Bank collapse (2023)Fact, law or data
The connection
When uninsured depositors fled, banks needed cash fast. In the week after SVB failed they borrowed a record of about $153 billion from the discount window, plus about $12 billion from the new Bank Term Funding Program, which lent against Treasuries at face value rather than their reduced market value.
When and why
Regional Reserve Banks, the week of March 13–15, 2023; borrowers included First Republic Bank, which still failed on May 1.
How we know
The Fed's weekly H.4.1 balance-sheet reports, and borrower-level data the Fed later released under Dodd-Frank disclosure rules.
Debates and risks
SVB itself was not set up to borrow quickly when the run hit. How to get banks to use the window before panic sets in is unresolved.