Federal Reserve Credit

At the end of the day, banks have to have enough cash on hand to make Uncle Sam happy. So there are what's known as reserve requirements. Usually, banks will borrow money from each other to meet these reserve requirements. For instance, some banks have more than they need to meet the reserve requirements, so they’ll loan out to banks who have less than they need.

Most of the time, banks will do this nightly loan-swap dance with each other. But another option for banks is to go to Big Daddy himself: the Federal Reserve.

Banks borrowing from the Fed the meet reserve requirements borrow in the form of a “federal reserve credit,” which is a super-short-term loan (often overnight). If you’ve ever heard of the “discount window,” that’s the dancehall...er, the facility...where banks and the Fed do this reserve requirement tango.

One Federal Reserve Credit, on the house.