Banks can borrow from the federal reserve system at discount rate.
Explanation:
The fed provides the fund for banks to increase their reserves through open market operations. The fed purchases government securities or bonds to increase reserves with banks.
If a bank is not able to borrow funds for its reserves from the Fed funds market, then, in that case, it can borrow from the federal reserve system at a discount window.
The rate at which it has pay back this loan is called the discount rate. This rate is used as a tool by the feds to control the money supply. The discount rate serves as a tool for monetary policy.
