Capital Requirements and Rational Discount-Window Borrowing

Posted: 26 Aug 1998

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When banks face capital regulations and stochastic deposit supply, their decisions to borrow at the discount window will be affected by a broader range of variables than previous theoretical and empirical studies have recognized. Moreover, those decisions can respond discontinuously to changes in market parameters and to the form of rationing rule by which the discount window is administered. Risk aversion can complicate these linkages considerably, even causing some banks to prefer a positive discount rate that may exceed the actual level.

JEL Classification: G21

Suggested Citation

Shaffer, Sherrill, Capital Requirements and Rational Discount-Window Borrowing. Journal of Money, Credit, and Banking, Vol. 30, No. 4 (November 1998). Available at SSRN:

Sherrill Shaffer (Contact Author)

University of Wyoming ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States
307-766-2173 (Phone)
307-766-5090 (Fax)

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