http://www.frbdiscountwindow.org/mechanics.cfm?hdrID=14
The Mechanics of Borrowing
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1.Requesting Federal Reserve Advances
2.Common Forms of Collateral
3.Loan Proceeds and Repayments
4.Interest on Discount Window Advances
Reserve Banks normally extend credit in the form of an advance secured by acceptable collateral. An institution that wants to borrow must have on file with its Reserve Bank the necessary authorizing resolutions and agreements, as described in Operating Circular 10: Lending [PDF, 249K]. A request for an advance may be made only by an authorized person, as noted in the borrowing resolutions and identified on a current list of authorized individuals or signature card.
1. Requesting Federal Reserve Advances
To request an advance, simply call your local Reserve Bank at its toll free number. Please be prepared to supply the following information:
Name and location (city and state) of your institution.
Your institution's ABA and telephone numbers.
Your name and title. If your institution's borrowing resolution requires that two people request a Discount Window loan, please have a second authorized individual available.
The amount you are requesting.
The number of days that funds will be needed. (Primary and secondary credit normally are extended on a one-day basis.)
Discount Window staff may request additional information, particularly when the request is for secondary credit.
2. Common Forms of Collateral
Acceptable collateral must be pledged to the Discount Window and placed in a loan collateral account before an advance is made. The following types of assets are most commonly pledged to secure advances:
Commercial, industrial, or agricultural loans
Consumer loans
Residential and commercial real estate loans
Corporate bonds and money market instruments
Obligations of U.S. government agencies and government sponsored enterprises
Asset-backed securities
Collateralized mortgage obligations
U.S. Treasury obligations
State or political subdivision obligations
Check with your local Reserve Bank regarding other acceptable types of collateral. Detailed information about collateral requirements and procedures can be found in The Federal Reserve System Guide to Discount Window Collateral.
The Federal Reserve recommends that institutions pledge collateral to the Discount Window before a need to borrow arises. In general, it is not operationally feasible to pledge collateral (other than book-entry securities issued by the U.S. Treasury, U.S. government agencies, or U.S. government sponsored enterprises) on the day a loan is requested.
3. Loan Proceeds and Repayments
An advance is issued with a stated maturity date. Proceeds are posted to the agreed-upon account (usually the borrowing institution's account or its correspondent's account), normally after the close of Fedwire. Discount Window loans must be repaid on the maturity date or, at the lending Reserve Bank's discretion, upon demand. Repayment of principal and accrued interest is charged to the account to which the loan was posted. (Details are contained in Operating Circular 10: Lending [PDF, 249K], Correspondent Credit and Payment Agreement - Appendix C, Exhibit 1.)
Multi-day advances, however, can be prepaid in whole or in part at the borrowing institution's option. Please be prepared to supply the following information to a discount window representative when calling to prepay:
Name and location (city and state) of your institution.
Your institution's ABA and telephone numbers.
Your name and title.
The amount of the prepayment.
Prepayment amounts will be applied sequentially to the loans that have been outstanding the longest.
4. Interest on Discount Window Advances
Interest on an advance is due and payable to the lending Reserve Bank at maturity or when repayment of principal on the advance is requested. Interest will be charged at the applicable rate in effect at the time the advance is made. However, if the interest rate stated is changed while an advance is still outstanding, the new rate will apply on and after the effective date of the change.
Interest accrues on the unpaid balance of an advance until the maturity date, at which time the remaining principal and any accrued interest will be automatically charged to the borrowing institution's reserve account or the designated correspondent's reserve account.
Interest on advances is charged for 24 hours (or a multiple thereof, for multi-day loans) on the basis of 365 days to the year.
A Note on Perfection of Security Interest in Pledged Collateral
All extensions of credit must be secured to the satisfaction of the Reserve Bank by collateral that is acceptable for that purpose. Assignments of collateral are made by the borrower under the terms and conditions of the Federal Reserve Bank's Lending Agreement. The Reserve Bank will normally require a perfected security interest in collateral pledged and will require a public filing when appropriate.
