Discount window

--The discount window was originally established as a way for the Fed to lend to banks having difficulty raising funds elsewhere, but the mechanism is little used as it generally carries a stigma. Officials are hoping their latest moves will encourage more borrowing, injecting more liquidity into the system. --Officials knew one of the biggest risks facing their new strategy was that banks wouldn't borrow at the discount window. In attempt to prevent that, officials went on the offensive. --The discount window can be particularly helpful to the nation's smaller institutions, which have less access to financing mechanisms than their larger brethren and are likely reining in their lending due to concerns about deteriorating credit markets. --Even so, the discount window's reach in the current crisis is limited by the fact that only banks can use it, and they aren't the ones facing the greatest strains. Fed officials categorically rejected suggestions by some analysts that they were acting on signs of distress among banks, saying banks are in good shape. Rather, the strains are being felt by nonbanks such as unregulated mortgage lenders, issuers of commercial paper, hedge funds, and the market for securitized loans such as mortgage-backed securities and collateralized debt obligations. --In theory banks could use the discount window to make relatively low-risk loans, such as jumbo mortgages -- as those over $417,000 are known -- or purchases of commercial paper, and be assured a profit for 30 days. Moreover, he noted that many investment dealers and finance companies have bank subsidiaries or affiliates that they may be able to use to access the discount window. For example, both Merrill Lynch and Morgan Stanley own industrial loan companies, and Countrywide owns a thrift, all of which have access to the discount window.