First, the intention and the stated regulation:
"What is the discount rate?
Banks also can borrow reserves directly from the Federal Reserve Banks at their "discount windows," and the discount rate is the rate that financially sound banks must pay for this "primary credit." The Boards of Directors of the Reserve Banks set these rates, subject to the review and determination of the Federal Reserve Board. ("Secondary credit" is offered at higher interest rates and on more restrictive terms to institutions that do not qualify for primary credit.) Since January 2003, the discount rate has been set 100 basis points above the funds rate target, though the difference between the two rates could vary in principle. Setting the discount rate higher than the funds rate is designed to keep banks from turning to this source before they have exhausted other less expensive alternatives. At the same time, the (relatively) easy availability of reserves at this rate effectively places a ceiling on the funds rate."
(http://www.frbsf.org/publications/federalreserve/monetary/tools.html)
--- discount window rate is determined by regulation A, though there is substantial freedom for rates to to below market (see http://www.federalreserve.gov/boarddocs/press/bcreg/2002/200210312/attachment.pdf, especially complaint that "above-market discount window framework generally would increase volatility" for their thought process)
--- as other comments have pointed out, the discount window was conceived as ample liquidity with a steep price
Second, the execution:
--- the data for federal funds and discount rate:
Date Discount Rate Federal Funds Rate
change New Level* Change New Level
Primary1 Secondary2
2010
Feb 19 +.25 0.75 1.25 N/A N/A
2008
Dec 16 -.75 0.50 1.00 -1 - -.75 0.00 - 0.25
Oct 29 -.50 1.25 1.75 -.50 1.00
Oct 8 -.50 1.75 2.25 -.50 1.50
Apr 30 -.25 2.25 2.75 -.25 2.00
Mar 18 -.75 2.50 3.00 -.75 2.25
Mar 16 -.25 3.25 3.75 N/A N/A
Jan 30 -.50 3.50 4.00 -.50 3.00
Jan 22 -.75 4.00 4.50 -.75 3.50
(http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html)
-- on 5 Dec 2008, federal funds target rate: 1.00
-- on 5 Dec 2008, published discount rate: 1.25 or 1.75
--- we already know the discount rate charged to these institutions was 0.01%
The most interesting question, for me, and the most pressing:
How is it that member banks learn that the discount rate is a goodly 0.01% if the published rate is 1.25% or 1.75%?