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http://ssrn.com/abstract=1754558
 
 

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Stigma in Financial Markets: Evidence from Liquidity Auctions and Discount Window Borrowing During the Crisis


Olivier Armantier


Federal Reserve Bank of New York

Eric Ghysels


University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Asani Sarkar


Federal Reserve Bank of New York

Jeffrey Shrader Jr.


Department of Economics, UC San Diego

August 26, 2011

FRB of New York Staff Report No. 483

Abstract:     
We provide empirical evidence for the existence, magnitude, and economic impact of stigma associated with banks borrowing from the Federal Reserve’s discount window facility during the 2007-2008 financial crisis. We find that banks were willing to pay an average premium of at least 37 basis points (and 150 basis points after Lehman’s bankruptcy) to borrow from the Term Auction Facility rather than from the discount window. The incidence of stigma varied according to bank characteristics and market conditions. Finally, we find that discount window stigma is economically relevant since it increased banks’ borrowing costs during the crisis. Our results have important implications for the provision of liquidity by central banks.

Number of Pages in PDF File: 47

Keywords: Discount Window, Term Auction Facility, Stigma, Crisis, Monetary Policy

JEL Classification: G01, G28, G21, G121

working papers series


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Date posted: February 4, 2011 ; Last revised: September 18, 2012

Suggested Citation

Armantier, Olivier and Ghysels, Eric and Sarkar, Asani and Shrader, Jeffrey, Stigma in Financial Markets: Evidence from Liquidity Auctions and Discount Window Borrowing During the Crisis (August 26, 2011). FRB of New York Staff Report No. 483. Available at SSRN: http://ssrn.com/abstract=1754558 or http://dx.doi.org/10.2139/ssrn.1754558

Contact Information

Olivier Armantier (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
Eric Ghysels
University of North Carolina Kenan-Flagler Business School ( email )
Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )
Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)
HOME PAGE: http://www.unc.edu/~eghysels/
Asani Sarkar
Federal Reserve Bank of New York ( email )
Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)
HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html
Jeffrey Shrader Jr.
Department of Economics, UC San Diego ( email )
9500 Gilman Drive
La Jolla, CA 92093-0508
United States
HOME PAGE: http://acsweb.ucsd.edu/~jgshrade/
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