Fed Seeks Shift in Operations
May. 17, 2002
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WASHINGTON (AP) _ The Federal Reserve on Friday unveiled a significant shift in its operations as the nation's lender of last resort. It proposed making it more expensive for banks to borrow directly from the Fed.
Currently, banks that go to the Fed's discount window are able to get loans that are about a half percentage point below the Fed's target for the federal funds rate, the interest that commercial banks charge each other for loans.
Under the proposal, the Fed would take away that break and instead charge banks using the discount window 1 full percentage point higher rate than the funds rate. If the change is adopted after a public comment period, it would be the most significant change in the Fed's discount window operations in nearly two decades.
Currently, the funds rate target is 1.75 percent, the lowest level in 40 years, and the discount rate is 1.25 percent.