When the Federal Reserve System was established in 1913, lending reserve funds through the discount window was intended as the principal instrument of central banking operations. Although the window was long ago superseded by open market operations as the most important tool of monetary policy, it still plays a complementary role.

The discount window functions as a safety valve in relieving pressures in reserve markets; extensions of credit can help relieve liquidity strains in a depository institution and in the banking system as a whole. By supplying liquidity during times of systemic stress, the window also helps to assure the basic stability of the payments system more generally.