“The discount window provides short-term loans to banks and plays an important role in supporting the liquidity and stability of the banking system,” the statement said, adding that banks should use the facility to shield customers from financial strain.
The discount window is a monetary policy instrument that allows eligible institutions to borrow money from the Federal Reserve, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions.
The Federal Reserve said that providing ready access to funding helps depository institutions manage liquidity risks efficiently and avoid actions that could have negative consequences for their customers.
“Thus, the discount window supports the smooth flow of credit to households and businesses,” the statement added.
The Federal Reserve’s statement came as stocks on Wall Street tumbled about 11 percent in Monday’s early trade on fears of a recession despite the central bank executing on Sunday an emergency rate cut - its second in two weeks - of one point and allocating $700 million for bond-buying to support financial markets.