Discount Window Borrowing and the Role of Reserves and Interest Rates

32 Pages Posted: 17 Mar 2025

See all articles by Mark A. Carlson

Mark A. Carlson

Board of Governors of the Federal Reserve System

Mary-Frances Styczynski

Board of Governors of the Federal Reserve System

Date Written: February, 2025

Abstract

The Federal Reserve’s discount window is a tool that can provide reserves to banks at a rate set by the Federal Reserve, the discount rate. During the past several years, there have been large fluctuations in the level of reserves in the banking system and in the level discount rate relative to other interest rates. In this paper, we explore how banks’ holdings of reserves, especially relative to the amount of reserves that banks prefer to hold, and the interest rate available at the discount window influence borrowing at the window. We find that banks borrow more when their reserves are low and when the discount rate is relatively attractive, although the size of these effects depends on a bank’s size, FHLB membership status, and financial condition.

Suggested Citation

Carlson, Mark A. and Styczynski, Mary-Frances, Discount Window Borrowing and the Role of Reserves and Interest Rates (February, 2025). FEDS Working Paper No. 2025-15, Available at SSRN: https://ssrn.com/abstract=5179589 or http://dx.doi.org/10.17016/FEDS.2025.015

Mark A. Carlson (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Mary-Frances Styczynski

Board of Governors of the Federal Reserve System ( email )

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

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