Federal Reserve Credit
At the end of the day, banks have to have enough cash on hand to make Uncle Sam happy. So there are what's known as reserve requirements. Usually, banks will borrow money from each other to meet these reserve requirements. For instance, some banks have more than they need to meet the reserve requirements, so they’ll loan out to banks who have less than they need.
Most of the time, banks will do this nightly loan-swap dance with each other. But another option for banks is to go to Big Daddy himself: the Federal Reserve.
Banks borrowing from the Fed the meet reserve requirements borrow in the form of a “federal reserve credit,” which is a super-short-term loan (often overnight). If you’ve ever heard of the “discount window,” that’s the dancehall...er, the facility...where banks and the Fed do this reserve requirement tango.
One Federal Reserve Credit, on the house.
Related or Semi-related Video
Finance: What is the Federal Housing Aut...11 Views
Finance a la shmoop what is the Federal Housing Authority or FHA? alright so
before 1934 a whole bunch of homes were doing this leaving a whole bunch of [Home crumbles to the ground]
people well doing this then along came the National Housing Act of 1934 thank
you FDR which created the FHA which served to stabilize the process of
building and buying homes and you can imagine that Home Building is a big fat [A house of cards appears]
house of cards when it's not well-managed shoddy workmanship allows
homes to fail in the first breath of wind the wolves out there so that
insurance companies are loathe to pay when they fall and so banks then are
loathe to lend money to would-be home builders and buyers and would you
believe it before the FHA normal home loans were only three to five years like
you'd borrow at today's dollars say 200 grand to buy a home and you'd be
expected to pay it all off in just a few years yeah the greatest generation they
were tougher than we are today they could actually do that so who could
afford to buy a home yeah pretty much nobody, nobody but the rich already rich
yeah so nobody then in that environment does a whole lot of nothing and a lot of [Man discussing home buyers]
people were very homeless and very unhappy and if you think about the way
wealth has been created in this country a lot of it's been through or even most [Young man and woman taking down a for sale sign]
of it's been through homeownership so in those days people really didn't have the
opportunity it was not a fair world well the FHA set basic standards that
serve to improve building and housing conditions so that everyone wasn't
susceptible to you know the big bad wolves huffing and puffing and a home as [Wolf walks past house and blows it down]
long as it wasn't made of straw actually had a chance of staying intact for a few
years and this was possible this was not high-tech look at Europe the homes they
have there or three four five hundred years old built out of brick Union labor
or non-union labor I guess with the king and they're doing just fine so go Europe! [Man holds up EU flag]
yeah you have to win one every now and then and now the typical home loan in
America anyway is about 30 years rather than three to five giving everyone ample
opportunity to pay hundreds of thousands of dollars in interest over the course
of repayment and the FHA sprays WD-40 on the tracks [Peron sprays WD-40 on train tracks]
of the banks you know who are then a lot more willing to loan that money and make
a whole lot more money for themselves thank you American capitalist system so
yeah thank goodness auto-pay came around so that you don't have to feel pain
every month when you write that mortgage check you know just ask everyone who
owns a home feels it and we feel your pain