Why do US banks borrow from the Fed? A fresh look at the ‘reluctance’ phenomenon

Darrat, Ali F.; Elkhal, Khaled; Banerjee, Gaurango; Zhong, Maosen

doi:10.1080/0960310042000216033

Cited by 9 publications

(7 citation statements)

References 17 publications

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“…Fed officials applied a non-price rationing mechanism by asking potential borrowers detailed questions about their financial well-being as well as requiring them to provide an unpublished list of acceptable reasons for borrowing before granting them a loan. Over time this administrative process pushed depository institutions away from the discount window because borrowing from the Fed was perceived as a signal of financial weakness by market participants (see, e.g., Goodfriend, 1983;Pearce, 1993;Dutkowsky, 1993;Clouse and Dow, 1999;Furfine, 2003;Dow, 2001;Darrat et al, 2004). 1 The new borrowing facility was designed to eliminate the reluctance to borrow from the Fed with a new ''no questions asked" policy towards eligible borrowers.…”

Section: Introductionmentioning

confidence: 99%

Discount window borrowing after 2003: The explicit reduction in implicit costs

Artuç

Demiralp

2010

Journal of Banking & Finance

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Section: Introductionmentioning

confidence: 99%

Discount window borrowing after 2003: The explicit reduction in implicit costs

Artuç

Demiralp

2010

Journal of Banking & Finance

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“…Slowly, this administrative process pushed depository institutions away from the discount window because borrowing from the Fed was perceived as a signal of financial weakness by market participants (see e.g. Goodfriend, 1983;Pearce, 1993;Dutkowsky, 1993;Peristiani, 1998;Clouse and Dow, 1999;Furfine, 2003;Dow, 2001;Darrat et al, 2004).…”

Section: Introductionmentioning

confidence: 99%

Provision of Liquidity Through the Primary Credit Facility During the Financial Crisis: A Structural Analysis

Artuç

Demiralp

2009

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractOver the course of the recent liquidity crisis, the Federal Reserve made several changes to its primary credit lending facility such as narrowing the spread between the primary credit rate and the target funds rate and increasing the term of the borrowing. In this paper, we use the model developed by Artuç and Demiralp (2008) to provide a structural assessment of the effectiveness of these changes. Our results suggest that these changes were effective in stabilizing the federal funds market.

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“…6 1 Mishkin (1996), Wilson and Kane (1996), Evans et al (2004), Muljawan et al (2004). 2 Friedman and Schwartz (1963), Kindleberger (1978), Bernanke (1983) Grossman (1993), and Darrat et al (2004). 3 A few states even had multiple liabilities as measures to contain risk taking by banks.…”

Section: Introductionmentioning

confidence: 98%

“…4 John Raymond LaBrosse, Secretary-General, International Association of Deposit Insurers (IADI) made this remark in his speech at the 16th Anniversary of the Nigeria Deposit Insurance Corporation, 2005. 5 Darrat et al (2004) show some big banks abuse the policy of Feb as the lender of the last resort for their own profit-taking purpose. 6 For details, see Grossman (1992) and Kane and Wilson (1998).…”

Section: Introductionmentioning

confidence: 99%

Designing deposit insurance scheme under asymmetric information with double liability option

Bhuyan

Yan

2007

Applied Financial Economics

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In this article, an option theoretic model is applied to develop a Deposit Insurance Scheme under asymmetric information environment. By introducing double liability as an option into the deposit insurance scheme, our model solves the Deposit Insurer's adverse selection problem. With appropriately designed deposit insurance premia and double liability obligations, we demonstrate that separating equilibria exist. The introduction of double liability into the current deposit insurance system adds additional cost to the system to make the insurance scheme more effective. Macey and Miller (1992) suggest that such double liability is a very useful tool for preventing the incentive problem typically created by current deposit insurance schemes. Based on Jackson (1993), Macey and Miller (1993) and Grossman (2002), no consensus exists to explain whether double liability can replace the current deposit insurance system. There are two companion issues that must be considered. The first is the preservation of the safety of the financial system. The second is the incentive created by current deposit insurance schemes for managers to take extra risk. This is an attempt to create a model in which both the deposit insurance premiums and double liability issues are integrated in a manner that preserves incentive compatibility, while embracing risk-sensitive deposit insurance policy.

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Why do US banks borrow from the Fed? A fresh look at the ‘reluctance’ phenomenon

Cited by 9 publications

References 17 publications

Discount window borrowing after 2003: The explicit reduction in implicit costs

Discount window borrowing after 2003: The explicit reduction in implicit costs

Provision of Liquidity Through the Primary Credit Facility During the Financial Crisis: A Structural Analysis

Designing deposit insurance scheme under asymmetric information with double liability option

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