Fed Wants to Take the Discount Out of Discount Rate

The Federal Reserve has a novel idea for the money it provides in times of crisis: Make it more expensive, and maybe more banks will use it.

Addressing a problem that became especially pronounced after the Sept. 11 terrorist attacks, the Fed is proposing to set its so-called discount rate above the fed funds rate that banks charge each other for overnight loans.

Currently, the discount rate is set a half percentage point below fed funds, reflecting its historic role as a source of funds for troubled banks that need access to cheap funds. ...