Editing Federal Reserve (section)

==== Discount window and discount rate ====
{{Further|Discount window}}

The Federal Reserve System also directly sets the '''discount rate''', which is the interest rate for "discount window lending", overnight loans that member banks borrow directly from the Fed. This rate is generally set at a rate close to 100 [[basis point]]s above the target federal funds rate. The idea is to encourage banks to seek alternative funding before using the "discount rate" option.<ref>Federal Reserve Bank San Francisco( 2004)</ref> The equivalent operation by the [[European Central Bank]] is referred to as the "[[marginal lending facility]]".<ref>{{Cite journal |last=Patricia S. Pollard |date=February 2003 |title=A Look Inside Two Central Banks: The European System of Central Banks and the Federal Reserve System |journal=Federal Reserve Bank of St. Louis Review |volume=85 |issue=2 |pages=11–30 |doi=10.3886/ICPSR01278 |oclc=1569030}}</ref>

Both the discount rate and the federal funds rate influence the [[prime rate]], which is usually about 3 percentage points higher than the federal funds rate.