Bank Rate (discount rate)
Bank rate, also known as discount rate in American English, is the rate of interest at which a bank lends money, especially the minimum rate of interest that banks are allowed to charge, which is decided by the country's central bank. (Collins English Dictionary)
If a bank needs more reserves in order to make new loans, it typically borrows from other banks in the federal funds market. The market is called the federal funds market because the funds are being loaned from one commercial bank’s excess reserves on deposit with the Federal Reserve to another commercial bank’s deposit account at the Fed. For instance, if the First National Bank has excess reserves of $1 million, it can lend the excess to the Second National Bank. When a bank borrows in the federal funds market, it pays a rate of interest called the federal funds rate. (Fundamentals of Economics)
The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility—the discount window. The Federal Reserve Banks offer three types of credit to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. All discount window loans are fully secured.
The discount rate on secondary credit is higher than the rate on primary credit. The rate for seasonal credit is an average of selected market rates. Rates are established by each Reserve Bank's board of directors, subject to the review and determination of the Board of Governors of the Federal Reserve System. The rates for the three lending programs are the same across all Reserve Banks. (Federal Reserve Board)
Boyes W., Melvin M.(2012). Fundamentals of Economics(ст.329). Cengage South-Western. 464 p. URL:https://industri.fatek.unpatti.ac.id/wp-content/uploads/2019/03/056-Fundamentals-of-Economics-William-Boyes-Michael-Melvin-Edisi-6-2012.pdf
Federal Reserve Board. (2024). The Discount Window and Discount Rate. Federal reserve. URL: https://www.federalreserve.gov/monetarypolicy/discountrate.htm
Bank Rate.Collins English Dictionary. HarperCollins Publishers, Retrieved from: https://www.collinsdictionary.com/dictionary/english/bank-rate.