"A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union."
Explanation of how central banks can lend money to commercial banks and the impact this has on the economy.
Definition of Discount Rates: The discount rate is the interest rate that a central bank charges commercial banks and other depository institutions for loans they take from the central bank's discount window.
Discount Window: The discount window is the central bank’s lending facility to depository institutions. It enables banks to borrow money on a short-term basis to meet their liquidity needs.
Reserve Requirements: Reserve requirements are the percentage of deposits that banks must hold in reserve, either as cash in their vaults or on deposit at the central bank.
Open Market Operations (OMOs): Open market operations are the purchases and sales of government securities by the central bank in the open market. They are used to manage the supply of reserves in the banking system.
Federal Funds Rate: The federal funds rate is the interest rate at which depository institutions lend balances to each other overnight.
Overnight Reverse Repurchase Agreement (ON RRP): The overnight reverse repurchase agreement (ON RRP) is a tool used by the Federal Reserve to take excess reserves out of the banking system by offering Treasury securities to investors on an overnight basis.
Term Auction Facility (TAF): The term auction facility is a temporary lending facility that allows depository institutions to bid for funds from the Federal Reserve at a set interest rate.
Term Deposit Facility (TDF): The term deposit facility is a tool that allows depository institutions to earn interest on excess reserves they hold at the Federal Reserve.
Quantitative Easing (QE): Quantitative easing is a monetary policy tool used by central banks to stimulate the economy by increasing the supply of money and lowering interest rates.
Money Supply: Money supply refers to the total amount of money in circulation in an economy, including physical currency, bank deposits, and other liquid assets.
Inflation: Inflation refers to the general increase in the price level of goods and services in an economy over time.
Economic Growth: Economic growth refers to the increase in the level of output or production of goods and services in an economy over time.
Interest Rates: Interest rates are the cost of borrowing money or the return on invested funds. They are one of the primary tools of monetary policy.
Discount Rate Impact on the Economy: The discount rate has an impact on the economy and can affect the money supply, inflation, economic growth, and interest rates.
Discount Rate Formula and Calculation: The discount rate is calculated using a formula that takes into account a variety of economic variables, including the federal funds rate, inflation, and economic growth.
Primary Credit Rate: The primary credit rate refers to the interest rate at which the central bank (e.g., Federal Reserve) lends funds to commercial banks as a way to manage short-term liquidity needs and influence overall interest rates within the economy.
Secondary Credit Rate: The Secondary Credit Rate refers to the interest rate charged by the Federal Reserve for short-term loans provided to banks that are not eligible for the primary credit rate.
Seasonal Credit Rate: The seasonal credit rate refers to the interest rate charged by the central bank to commercial banks for borrowing funds on a short-term basis to cover seasonal fluctuations in their reserve requirements.
Emergency Credit Rate: Emergency Credit Rate refers to an interest rate set by central banks during times of financial crisis or emergencies to provide liquidity and encourage lending.
Collateral Margins: Collateral margins refer to the additional value or buffer set by lenders above the value of the collateral provided by borrowers, serving as a protection against potential losses or fluctuations in the collateral's market value.
Primary Credit Program Special Lending Facilities: The Primary Credit Program Special Lending Facilities refer to specific lending initiatives by central banks that provide short-term loans to eligible depository institutions at a predetermined discount rate to address liquidity needs during times of financial stress.
Term Auction Facility: The Term Auction Facility is a policy tool used by central banks to provide short-term liquidity to banking institutions through auctioning fixed-rate funds.
"In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base."
"Many central banks also have supervisory and/or regulatory powers to ensure the stability of commercial banks in their jurisdiction, to prevent bank runs, and in some cases also to enforce policies on financial consumer protection and against bank fraud, money laundering, or terrorism financing."
"Central banks in most developed nations are institutionally independent from political interference, even though governments typically have governance rights over them and legislative bodies exercise scrutiny."
"Issues like central bank independence, central bank policies and rhetoric in central bank governors' discourse or the premises of macroeconomic policies (monetary and fiscal policy) of the state are a focus of contention and criticism by some policymakers, researchers and specialized business, economics, and finance media."
"Many central banks also have supervisory and/or regulatory powers to ensure the stability of commercial banks in their jurisdiction."
"In some cases also to enforce policies on financial consumer protection and against bank fraud, money laundering, or terrorism financing."
"Governments typically have governance rights over them."
"Legislative bodies exercise scrutiny."
"Central banks in most developed nations are institutionally independent from political interference."
"Issues like central bank independence [...] are a focus of contention and criticism."
"The premises of macroeconomic policies (monetary and fiscal policy) of the state are a focus of contention and criticism."
"A central bank [...] manages the currency and monetary policy of a country or monetary union."
"An institution that manages the currency and monetary policy."
"To ensure the stability of commercial banks in their jurisdiction, to prevent bank runs."
"To enforce policies on financial consumer protection and against bank fraud, money laundering, or terrorism financing."
"Issues like central bank policies and rhetoric [...] are a focus of contention and criticism by some policymakers, researchers and specialized business, economics, and finance media."
"[...] a focus of contention and criticism by some policymakers."
"To focus on contention and criticism by some policymakers, researchers and specialized business, economics, and finance media."
"Contention and criticism by some policymakers, researchers [...]"