The Fed's Discount Window in "Normal" Times

72 Pages Posted: 23 Apr 2021

See all articles by Huberto M. Ennis

Huberto M. Ennis

Federal Reserve Banks - Federal Reserve Bank of Richmond

Elizabeth Klee

Board of Governors of the Federal Reserve System

Date Written: February 14, 2021

Abstract

We study new transaction-level data of discount window borrowing in the U.S. between 2010 and 2017, merged with quarterly data on bank financial conditions (balance sheet and revenue). The objective is to improve our understanding of the reasons for why banks use the discount window during periods outside financial crises. We also provide a model of the decision of banks to borrow at the window, which is helpful for interpreting the data. We find that decisions to gain access and to borrow at the discount window are meaningfully correlated with some relevant banks' characteristics and the composition of banks' balance sheets. Banks choose simultaneously to obtain access to the discount window and hold more cash-like liquidity as a proportion of assets. Yet, conditional on access, larger and less liquid banks tend to borrow more from the discount window. In general, our findings suggest that banks could, in principle, adapt their operations to modulate, and possibly reduce, their use of the discount window in "normal" times.

Keywords: Banking; Central Bank; Federal Reserve; Liquidity

JEL Classification: E52; E58; G28

Suggested Citation

Ennis, Huberto M. and Klee, Elizabeth, The Fed's Discount Window in "Normal" Times (February 14, 2021). Available at SSRN: https://ssrn.com/abstract=3832777 or http://dx.doi.org/10.2139/ssrn.3832777

Huberto M. Ennis (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Elizabeth Klee

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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