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Discount window stigma during the 2007-2008 financial crisis

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

No 483, Staff Reports from Federal Reserve Bank of New York

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 2007-08 financial crisis. We find that banks were willing to pay a premium of around 44 basis points across funding sources (126 basis points 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 32 basis points 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: Term Auction Facility; stigma; monetary policy; crisis; Discount Window (search for similar items in EconPapers)
JEL-codes: G28 G21 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2011, Revised 2015-08-01
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
Note: Previous title: Stigma in financial markets: evidence from liquidity auctions and discount window borrowing during the crisis. For a published version of this report, see Olivier Armantier, Eric Ghysels, Asani Sarkar, and Jeffrey Shrader, "Discount Window Stigma during the 2007-2008 Financial Crisis," Journal of Financial Economics 118, no. 2 (November 2015): 317-335.
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