In 2002, the Federal Reserve changed its discount lending procedures. Which of the following statements is correct? ?

Question

In 2002, the Federal Reserve changed its discount lending procedures. Which of the following statements is correct? ?

Quizplus · Accepted Answer

Before 2002, the Federal Reserve's approach to discount lending was such that it discouraged banks from borrowing by imposing certain restrictions and stigmas associated with borrowing from the discount window. This approach could lead to volatility in the market for reserves as banks might prefer to seek alternative, potentially more expensive or less stable sources of funding rather than borrow from the Fed. The changes in 2002 aimed to encourage banks to use the discount window more freely, thereby reducing market volatility.

In 2002, the Federal Reserve Changed Its Discount Lending Procedures