When the Federal Reserve makes a loan to a bank at the discount window,

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When the Federal Reserve makes a loan to a bank at the discount window, the loan is backed by collateral, which includes a range of securities from Treasury bills and bonds to commercial and residential mortgage-backed securities. This collateral serves as a security for the Fed in case the borrowing bank fails to repay the loan. The Fed requires banks to pledge collateral to ensure that they have a sufficient incentive to repay the loan and maintain financial stability. The interest rate charged by the Fed on discount window loans is typically above the federal funds rate. The Fed may extend the loan for a longer period of time than just the next day, depending on the specific circumstances. The Fed does not require banks to buy additional deposit insurance when they borrow from the discount window.

When the Federal Reserve Makes a Loan to a Bank