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Federal Reserve Bank of New York
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Discount window stigma during the 2007-2008 financial crisis
Olivier Armantier
Eric Ghysels
Asani Sarkar
Jeffrey Shrader

We provide empirical evidence for the existence, magnitude, and economic cost of stigma associated with banks borrowing from the Federal Reserve’s Discount Window (DW) during the 2007-08 financial crisis. We find that banks were willing to pay a premium of around 44 basis points across funding sources (126 basis points after the bankruptcy of Lehman Brothers) to avoid borrowing from the DW. DW stigma is economically relevant as it increased some banks’ borrowing cost by 32 basis points of their pre-tax return on assets (ROA) during the crisis. The implications of our results for the provision of liquidity by central banks are discussed.

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Olivier Armantier & Eric Ghysels & Asani Sarkar & Jeffrey Shrader, Discount window stigma during the 2007-2008 financial crisis, Federal Reserve Bank of New York, Staff Reports 483, 2011, revised 01 Aug 2015.
More from this series
Note: Previous title: Stigma in financial markets: evidence from liquidity auctions and discount window borrowing during the crisis. For a published version of this report, see Olivier Armantier, Eric Ghysels, Asani Sarkar, and Jeffrey Shrader, "Discount Window Stigma during the 2007-2008 Financial Crisis," Journal of Financial Economics 118, no. 2 (November 2015): 317-335.
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Keywords: Discount Window; Term Auction Facility; stigma; crisis; monetary policy
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