To obtain a discount loan from the Federal Reserve, what must a commercial bank provide?

When a commercial bank seeks a discount loan from the Federal Reserve, it is required to provide collateral. This collateral serves as a safeguard for the Federal Reserve, ensuring that there is an asset backing the loan. If the bank is unable to meet its repayment obligations, the Federal Reserve can seize the collateral to minimize their risk.

The nature of the collateral can include a variety of high-quality financial assets, such as government securities, which are valued as secure and stable. This lending mechanism ensures that the central bank can support the liquidity needs of its member banks while maintaining a level of security for the funds it is lending.

Other considerations, such as proving the necessity of the loan or agreeing to increased scrutiny, are not standard requirements for obtaining a discount loan. The focus is primarily on the collateral aspect to facilitate the transaction while protecting the Federal Reserve’s interests.