Is discount lending used to keep banks from failing? Explain.

What will be an ideal response?

Not really. Discount loans to banks made by Fed require the bank post adequate collateral. If a bank has adequate collateral and is in good shape under most circumstances it should be able to borrow from another bank at the federal funds rate that, since 2002, is below the discount rate. If a bank has to come to the Fed for a loan it is a bank that cannot get a loan from another bank and if they can't provide collateral they are a bank that is likely to fail and probably should fail. The Fed may try to merge the bank into another bank, however, discount lending is not used to keep insolvent banks afloat.