Primary Credit Program (the "Discount Program Modification") (Fed)

The Primary Credit Program (the “Discount Program Modification”) (Fed)

Primary Credit program was an existing program loaning funds to banks overnight that was dramatically expanded in August 2007. The Federal Reserve eventually expanded the loans from 1 day to 90 and from 1 percentage point over the target federal funds rate down to ¼ percentage point. In early 2010, the program was gradually brought back to its original terms. Loans to banks crested at $111.946 billion on Oct. 29, 2009. As of Feb. 17, 2010, $14.263 billion was still outstanding.

Funding agency and aid type
The funding agency was the Federal Reserve.

Below-market loans.

Who benefits
Banks (Federal Reserve depositors)

Background
SIGTARP: "“Primary Credit Program (the ‘Discount Program Modification’) — Total Potential Support: At Least $111.9 Billion. Primary credit loans are taken by banks at the Federal Reserve’s discount window when they require short-term funds to meet the needs of their customers and creditors. Normally, the Federal Reserve lends at a fixed rate and the bank must post suitable collateral, subject to a haircut. In August 2007, the Federal Reserve set the term at 30 days and approved a 50-basis-point reduction in the primary credit rate to narrow the spread to 50 basis points, or 0.5%, in response to the liquidity crisis in the banking system. Accessibility was broadened in March 2008, as the interest rate was lowered to 25 basis points over the FOMC target federal funds rate, and the term has been lengthened from 30 to 90 days, renewable by the borrower.”"

Via Prins: "“The Discount Window functions as a safety valve in relieving pressures in reserve markets; extensions of credit can help alleviate liquidity strains in a depository institution and in the banking system as a whole. It also helps ensure the basic stability of the payment system by supplying liquidity during times of systemic stress. In order to borrow from the New York Fed, an institution must have on file the necessary authorizing resolutions and agreements, as described in Operating Circular 10 as well as pre-approved eligible collateral.”"

Prins: "“The Fed provided $112 billion to offer loans at a discounted rate to eligible institutions in 2009.”"

Related SourceWatch articles

 * SIGTARP Quarterly Report to Congress July 21, 2009
 * Troubled Asset Relief Program

External resources

 * FRBSTL accounting: http://www.research.stlouisfed.org/fred2/series/WPC
 * Federal Reserve homepage: http://www.frbdiscountwindow.org/discountwindowbook.cfm?hdrID=14&dtlID=43