If the Federal Reserve increases the spread between the federal funds rate and the discount rate, the cost of being short of reserves increases and the amount that banks are willing to lend decreases.
What is Federal Reserve system?
The Federal Reserve System (FRS) is the nation's central bank. The Federal Reserve, or Fed, is perhaps the most potent financial organization in the world. In order to give the nation a secure, adaptable, and stable financial and monetary system, it was formed. Seven people make up the board of the Federal Reserve. Additionally, there are 12 Federal Reserve banks, each of which has a president who represents a different district.
Conducting national monetary policy, overseeing and regulating banks, preserving financial stability, and offering banking services are among the Fed's primary responsibilities.
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