Finance and Economics Discussion Series (FEDS)
March 2021 (Revised December 2024)
The Fed's Discount Window in "Normal" Times
Huberto M. Ennis and Elizabeth Klee
Abstract:
We study transaction-level data of bank borrowings at the Federal Reserve’s discount window from 2010 to 2019. We merge these data with quarterly information on bank balance sheets and income statements. To aid in the interpretation of our empirical analysis, we also develop a detailed model of the decision of banks to borrow from various sources, including the discount window. The objective is to contribute to a better understanding of the reasons why banks use the discount window during “normal” times—periods of relative calm in financial markets. Consistent with our model, we find that borrowing from the discount window is tightly linked to the composition of banks’ balance sheets. Most importantly, banks holding less reserves tend to borrow more often (and more) from the Fed’s discount window. Similarly, banks with more expensive and fragile liabilities, and less marketable collateral, are also more likely to borrow from the Fed.
Keywords: Banking, Federal Reserve, Central Bank, Liquidity
DOI: https://doi.org/10.17016/FEDS.2021.016r1
PDF: Full Paper
Original Paper: PDF | Accessible materials (.zip)
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.