Q. 3. How does this affect the ability of a bank to grant accommodation to its customers?

A. The ability of a bank to grant accommodation to its customers under our system of banking is dependent upon its ability to maintain a fixed ratio of reserves to its deposit liability. As additional accommodation is extended, deposits increase, and a larger reserve becomes necessary. If the bank cannot obtain this additional reserve, it must cease extending accommodation. By borrowing from the Federal Reserve bank and taking credit upon the books of that institution, the member's reserve is increased and its power to extend accommodation is thereby correspondingly extended to a maximum amount equal, in the case of a country bank, to about fourteen times the amount it borrows from the Federal Reserve bank, and in the case of a reserve city bank or a central reserve city bank, to about ten times and eight times, respectively.

Q. 4. How much can a member bank borrow from the Federal Reserve bank?

A. The law places no limitation upon the amount which a particular member bank may borrow from its Federal Reserve bank, and the only practical limit is that which would be dictated by the banking judgment of the management of the Federal Reserve bank, having in mind its own position and the needs of all the other member banks.

Q. 5. Can a member bank borrow on anything besides commercial paper?

A. Yes. Obligations of the United States government are available as collateral for loans made by the Federal Reserve bank to its members, and notes of customers, secured by United States government obligations, or given for the purpose of purchasing or carrying government securities, are eligible for rediscount.