Board of Governors of the Federal Reserve System

Slide 1: Cover

A History of the Fed’s Discount Window: 1913-2000

Philip N. Jefferson
Vice Chair, Federal Reserve Board
Davidson College, Oct. 8, 2024

Disclaimer: The views I will express today are my own and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System.

Slide 2: Roadmap of Talk

• Economic Outlook
• Historical Perspective on Discount Window
• Request for Information

Slide 3, Figure 1: PCE and Core PCE Inflation

Slide 4, Figure 2: Unemployment Rate

Slide 5, Figure 3: Effective Federal Funds Rate

This is a line chart titled “Effective Federal Funds Rate”. The x-axis ranges from January 2018 to October 2nd , 2024; in daily increments. The y-axis is in percent and ranges from 0% to 6%. In this chart, there is a single variable designated by a solid black line. The series is roughly at 2% from 2018 until early 2020 where it drops to near zero, before beginning to increase in early 2022, increasing in steps of roughly .25%, until reaching a high of roughly 5.5% in late 2023, before decreasing 0.50% in late September.

Slide 6, Figure 4: Newspaper Illustration from 1983

Drawing from the “Rocky Mountain Times” circa July 19th, 1893, of a castle on an isolated rocky island, surrounded by turbulent seas crashing waves onto the island’s rocks. However, the castle and island are not being overtaken by the waves, in fact, the castle is well out of reach of the waves, signifying that the island and castle are firm in their position. The castle represents an amalgamation of several banks, City National Bank, Denver National Bank, etc. The rocky island holding the castle is labeled “Public Confidence”. The ocean its waves are labeled panic. This figure seems to be suggesting that panic is swirling around the banks while public confidence is protecting said banks from being swallowed by the panicked ocean. The choice of the author to describe the banks as a castle could be signaling that the banks have a fortress mentality, not lending, isolated.

Slide 7, Table 1. Member Banks Borrowing Continuously for a Year or More from Reserve Banks

Slide 8, In 1926 the Fed Encourages a Reluctance to Borrow from Discount Window

“the funds of the Federal Reserve banks are primarily intended to be used in meeting the seasonal and temporary requirements of members, and continuous borrowing by a member bank as a general practice would not be consistent with the intent of the Federal Reserve Act.” 1926 Federal Reserve Annual Report, page 4.

Slide 9, Figure 5: Discount Window Borrowing

This is a line chart titled “Discount Window Borrowing”. The x-axis ranges from the date November 1914 to the date March 2024; in one-month increments. The y-axis is in percent and ranges from 0% to 45%. There is a single variable in the chart which is monthly in its frequency. It is monthly because it is a monthly average of previously weekly data. This variable is designated by a solid blue line. The variable rises and falls in a volatile manner from the start until 1934, variating from near 0% to roughly 45%. In 1934, it settles on a value of near zero where it stays until 2008, where it sharply increases to roughly 25% before returning to zero a few years later.

Slide 10, Request for Information (RFI)

• RFI published in the Federal Register on September 10, 2024
• You can find the RFI at https://www.federalregister.gov
• Comment period is open until December 9, 2024