When the Federal Reserve System was established in 1913, lending reserve funds through the discount window was intended as the principal instrument of central banking operations. Although the window was long ago superseded by open market operations as the most important tool of monetary policy, it still has a complementary role in the day-to-day implementation of policy.
The Discount window functions as a safety valve in relieving pressures in reserve markets; in circumstances where extensions of credit can help relieve liquidity strains in the banking system, the window also helps to assure the basic stability of financial markets more generally.
The Discount Window function is able to assist customers in establishing borrowing relationships, ensuring that appropriate collateral is in place, and extending credit. The Discount Window is administered in accordance with the Federal Reserve Act, Regulation A, and Operating Circular 10 - Lending.
The Federal Reserve System Discount Window site provides the following: