The Fed's Discount Window in "Normal" Times

Abstract

We study new transaction-level data of discount window borrowing in the U.S. from 2010-17, merged with quarterly data on bank financial conditions (balance sheet and revenue). The objective is to improve our understanding of the reasons why banks use the discount window during periods outside financial crises. We also provide a model of the decision of banks to borrow at the window, which is helpful for interpreting the data. We find that decisions to gain access and to borrow at the discount window are meaningfully correlated with some relevant banks' characteristics and the composition of banks' balance sheets. Banks choose simultaneously to obtain access to the discount window and hold more cash-like liquidity as a proportion of assets. Yet, conditional on access, larger and less liquid banks tend to borrow more from the discount window. In general, our findings suggest that banks could, in principle, adapt their operations to modulate, and possibly reduce, their use of the discount window in "normal" times.

Can Discount Window Stigma Be Cured? An Experimental Investigation

“…Recent studies on liquidity provision through the DW include Ackon and Ennis (2017), Ennis and Klee (2023), and Beyhaghi and Gerlach (2023). Empirical evidence of stigma associated with backstop facilities like the DW has been provided by Peristiani (1998), Furfine (2001), Armantier et al (2015, Anbil (2018), Vossmeyer (2019), Anbil and Vossmeyer (2019), Beyhaghi and Gerlach (2023), and Armantier and Cipriani (2024).…”