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Discount window stigma during the 2007–2008 financial crisis

Olivier Armantier, Eric Ghysels, Asani Sarkar () and Jeffrey Shrader

Journal of Financial Economics, 2015, vol. 118, issue 2, 317-335

Abstract: 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 2007–2008 financial crisis. We find that banks were willing to pay a premium of around 44 basis points (bps) across funding sources (126bps 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 32bps 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.

Keywords: Discount window; Term auction facility; Stigma; Crisis; Monetary policy (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:118:y:2015:i:2:p:317-335

DOI: 10.1016/j.jfineco.2015.08.006

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