The Fed's Discount Window in "Normal" Times

Huberto Ennis and Elizabeth Klee

No 2021-016, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study new transaction-level data of discount window borrowing in the U.S. between 2010 and 2017, merged with quarterly data on bank financial con- ditions (balance sheet and revenue). The objective is to improve our under- standing of the reasons for 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 meaning- fully 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.

Keywords: Banking; Central Bank; Federal Reserve; Liquidity (search for similar items in EconPapers)
JEL-codes: E52 E58 G28 (search for similar items in EconPapers)
Pages: 72 p.
Date: 2021-03-19
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
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https://www.federalreserve.gov/econres/feds/files/2021016pap.pdf (application/pdf)

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Working Paper: The Fed's Discount Window in "Normal" Times (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-16

DOI: 10.17016/FEDS.2021.016

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