Yet another econ question (Fed Rates and Borrowing) its, commercial, overnight, discount, question

YouCanDoIt

Thinking of the Fed Reserve, target rate and discount rate. Why would a commercial bank, needing to up its overnight reserves borrow from anywhere other than the Fed discount window? Isn’t that rate pretty much always going to be less than the target rate that can be gotten from other banks?

JRossSter

Ditchdigger, thanks, that first sentence explains it. Incorrect/confused premise on my part!

kamara5

You’re a bit confused. discount rate>fed funds rate
Banks prefer to borrow from other banks via the fed funds rate as it is cheaper.
Think for a minute why a bank would go to the fed to borrow at the discount rate? Hmm…perhaps no other banks will lend to them? It carries a very negative stigma if a bank needs to contact the fed for an overnight loan.