Discount loans extended by the Federal Reserve Bank – normally an important factor in the macroeconomy. However, in crises discount loans are a safety net that reassures the –. It is in the economy’s best interest that the Fed serves as a regulator of banks because of the – nature of banking.

Discount loans extended by the Federal Reserve are not normally an important factor in the macroeconomy. The Fed used the discount rate to administer monetary policy actively until the Great Depression. During that time, the Fed would increase the discount rate to discourage borrowing by banks, or decrease the discount rate to encourage bank borrowing. Today, the Fed discourages discount borrowing unless banks are struggling.

Explanation:

Discount loans are the vehicle by which the Fed performs its role as "lender of last resort." Given the macroeconomic danger of bank failure, the Fed serves an important role as a backup lender to private banks that find difficulty borrowing elsewhere.

In 2008, the Fed made discount loans to other financial institutions besides just struggling banks. This was an unprecedented move, to prevent a domino-like collapse of the U.S. financial system.