Discount Window Lending: Policy Trade-offs and the 1985 BoNY Computer Failure

Huberto Ennis and David A. Price

Richmond Fed Economic Brief, 2015, issue May

Abstract: On November 21, 1985, the Bank of New York (BoNY) suffered a software failure that left it unable to redeliver securities it had received from other institutions as an intermediary. The result of the failure was that the bank sought and received $22.6 billion in discount window lending from the New York Fed, a record-setting amount. The episode presents a case study for considering when discount window lending and similar interventions are justified as a matter of efficiency, as well as the need for policymakers to take account of possible moral hazard that may lead to inadequate safeguards against failures ? whether operational breakdowns or deficient financial strategies.

Date: 2015
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