Search Results
Discussion Paper
Discount Window Stigma After the Global Financial Crisis
The rapidity of deposit outflows during the March 2023 banking run highlights the important role that the Federal Reserve’s discount window should play in strengthening financial stability. A lack of borrowing, however, has plagued the discount window for decades, likely due to banks’ concerns about stigma—that is, their unwillingness to borrow at the discount window because it may be viewed as a sign of financial weakness in the eyes of regulators and market participants. The discount window has been reformed several times to alleviate this problem. Although the presence of stigma ...
Journal Article
The Fed's Discount Window: An Overview of Recent Data
From July 2010 until June 2015, the Federal Reserve made over 16,000 loans to financial institutions through the discount window. Recent regulations mandate the release of detailed information about individual loans two years after their occurrence. We study the newly available loan data and uncover the main patterns that broadly describe activity at the Fed's discount window in recent years.
The Speed of Discount Window Lending: A Look Back at 1985
The 1985 thrift crises in Ohio and Maryland show how the Fed, as a lender of last resort, took proactive steps to enhance the effectiveness of its discount window.
Discussion Paper
Why Do Banks Feel Discount Window Stigma?
Even when banks face acute liquidity shortages, they often appear reluctant to borrow at the New York Fed’s discount window (DW) out of concern that such borrowing may be interpreted as a sign of financial weakness. This phenomenon is often called “DW stigma.” In this post, we explore possible reasons why banks may feel such stigma.
Journal Article
Models of Discount Window Lending: A Review
This article is a review of the literature that discusses the role of the central-bank discount window using explicit formal general equilibrium models of the economy. For each of the main papers in the literature, a description of the model and the main mechanisms at play is provided. To increase accessibility for a broad audience, the discussion attempts to keep at a minimum the more technical aspects of the subject. A deliberate effort is made to identify common features across models and some lessons that may be useful for policymaking.
Report
Discount Window Stigma After the Global Financial Crisis
We study Discount Window (DW) stigma, the reluctance to access the Federal Reserve’s lender-of-last resort facility, between 2014 and 2024. Despite increased usage since 2020, we find conclusive evidence that the DW is stigmatized, especially among smaller banks and when financial markets experience disruptions. In particular, evidence of DW stigma emerged months before the 2023 banking turmoil and had not subsided a year later. We also identify new determinants and consequences of DW stigma. The implications of these results for the provision of emergency liquidity are discussed.
Working Paper
The Fed's Discount Window: An Overview of Recent Data
From July 2010 until June 2015, the Federal Reserve made over 16,000 loans to financial institutions through the discount window. Recent regulations mandate the release of detailed information about individual loans two years after their occurrence. We study the newly available loan data and uncover the main patterns that broadly describe activity at the Fed?s discount window in recent years.
Anticipatory discount window stigma
Observers often assert that stigma—a perception that depositors, investors or others will penalize an institution for borrowing from the discount window—keeps banks from borrowing when they should, making the facilities less effective. Dallas Fed Senior Vice President Sam Schulhofer-Wohl argues that some harms of discount window stigma can be mitigated regardless of whether stigma itself persists.
Briefing
Understanding Discount Window Stigma
The discount window is a tool that the Federal Reserve has long used to increase the stability of the financial system, but some believe its effectiveness is diminished by stigma: institutions may avoid borrowing from it out of concern that they may be perceived as being in weakened financial condition. Recent Richmond Fed research has shed new light on the functioning of the discount window and the role that stigma may play in achieving desirable outcomes.
Discussion Paper
Can Discount Window Stigma Be Cured?
One of the core responsibilities of central banks is to act as “lender of last resort” to the financial system. In the U.S., the Federal Reserve has been operating as a lender of last resort through its “discount window” (DW) for more than a century. Historically, however, the DW has been plagued by stigma—banks’ reluctance to use the DW, even for benign reasons, out of concerns that it could be interpreted as a sign of financial weakness. In this post, we report on new research showing that once a DW facility is stigmatized, removing that stigma is difficult.