The Bank of Homewood would like to offer more loans to customers, but it is low on available funds.P

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.....thinking about borrowing funds froms from the Fed. If the Bank of Homewood does acquire funds from the Fed it will :

a) have to pledge some of its securities as collateral, because the Fed does not make unsecured loans.

b) pay a rate of interest on the amount borrowed called the RESERVE rate.

c) pay a rate of interest on the amount borrowed called the DISCOUNT rate.

d) be required to use the funds to offer loans to small businesses owned by women and minorities.

The Bank of Homewood would like to offer more loans to customers, but it is low on available funds.Patty is...

If the Bank of Homewood wants to borrow from the Fed, it would both have to a) pledge some high-quality securities with a market value higher than the amount borrowed, generally 150 basis points above the securities' stated coupon, and c) pay a rate of interest called the discount rate.

If the bank is really serious about increasing its funding for new loan growth, borrowing from the Fed is a poor option. The reason for this is because Fed discount loans are only overnight and are generally at a much higher rate than core funding, like deposits.

Banks generally only borrow from the Fed to meet reserve requirements, and that typically as a last resort.

The Bank of Homewood would like to offer more loans to customers, but it is low on available funds.P

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