Seasonal borrowing

Seasonal Credit

Established in 1973, the seasonal credit program assists small in­stitutions that lack effective access to national money markets. To qualify for the program, an institution must demonstrate a sea­sonal funding need arising from regular, intra-yearly swings in deposits and loans that persist for at least four weeks. The pro­gram is structured so that larger institutions must meet a larger portion of their seasonal need through market funding sources-institutions with more than $250 million in total deposits generally cannot demonstrate a need under the criteria of the seasonal program. Also, institutions with access to a special industry lender that provides similar assistance are expected to use that source before using the Federal Reserve seasonal credit program. The regular pattern in seasonal borrowing during any given year is associated primarily with loan demand in the farm sector. Most seasonal borrowers are small agricultural banks that face strong loan demand and deposit runoffs during the planting and growing seasons over the spring and summer months. Later in the year, farmers reap their harvest and pay down their bank loans. Simultaneously, banks pay down their seasonal loans from the Federal Reserve.

The amount of seasonal borrowing grew rapidly from 1986 through 1989. Most of the growth re­flected increasing use of the program by non-member banks that had not been eligible for the program before the Monetary Control Act. In the early 1990s, the peak volume of seasonal borrowing edged down, probably because of somewhat weaker loan demand during a period of sluggish economic growth and the move to a market-related in­terest rate on seasonal credit.

Дата добавления: 2014-12-29