Agencies Issue Guidance on Appropriate Use of Discount Window
July 23, 2003
Circular No. 11531

To All Depository Institutions and Others Concerned in the Second Federal Reserve District:

In a joint press release, the federal banking, thrift, and credit union regulatory agencies issued guidance on the appropriate use of the Federal Reserve's new primary credit discount window program in depository institutions' liquidity risk management and contingency planning.

The guidance provides background on the Federal Reserve's discount window programs, including new primary and secondary credit programs introduced in January 2003. It also reiterates well-established supervisory policies on sound liquidity contingency planning, and discusses sound practices in using the primary credit program.

Adequate liquidity contingency planning is critical to the ongoing maintenance of the safety and soundness of any financial institution. By enhancing the availability of discount window credit, the Federal Reserve's new primary credit program offers depository institutions an additional source of backup funds for managing short-term liquidity risks and improving the diversification of their contingency funds.

A supervisory letter (SR 03-15) has been issued to inform depository institutions of the appropriate use of the new program. Details on the guidance may be obtained from the interagency advisory.

Questions on this matter may be directed at this Bank to William A. Walsh, Discount Officer.