The Federal Reserve's Discount Window and TAF Programs: 'Pushing on a String?'
Allen N. Berger
University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center
Lamont K. Black
DePaul University - Driehaus College of Business; Center for Financial Services
Christa H. S. Bouwman
Texas A&M University; Wharton Financial Institutions Center
Washington University in Saint Louis - John M. Olin Business School
October 28, 2015
The Federal Reserve injected unprecedented liquidity into banks during the recent financial crisis using the discount window and Term Auction Facility. We examine these facilities’ use and effectiveness and have three main findings. First, small bank users were generally weak, large bank users were not. Second, the funds were weak substitutes to other funding sources. Third, these facilities increased aggregate lending, enhancing lending at expanding banks and reducing decline at contracting banks. Small banks increased small business lending, while large banks enhanced large business lending. Loan quality only improved at small banks, while both left loan contract terms unchanged.
Number of Pages in PDF File: 72
Keywords: Banks, Discount Window, Term Auction Facility, Central Bank, Lending
JEL Classification: G21, G28, E58
Date posted: April 28, 2014 ; Last revised: October 30, 2015
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