Seasonal Borrowing and Open Market Operations

A small depository institution with a history of a pronounced seasonal increase in loans relative to deposits may borrow a substantial portion of its projected excess from a Federal Reserve Bank at the basic discount rate. In the aggregate, this seasonal borrowing program provides only a scant source of funds to the financial system, within a framework that is essentially the same as when the program was introduced in 1973Substantial growth of peak seasonal borrowing in recent years, after a decade or more of significant changes in financial market structure, suggests the timeliness of reviewing the rationale for the seasonal borrowing program. Furthermore, review seems doubly important because variations in seasonal borrowing have been complicating monetary policy implementation. The purpose of this paper is threefold. The first objective is to provide a brief description of the program and its role in funding banks and