Odd Lots

Why Banks Are Suddenly Borrowing From the Fed's Discount Window

Jan 13, 2023

In this engaging discussion, Bill Nelson, chief economist at the Bank Policy Institute and former Federal Reserve expert, dives into the intricacies of the Fed's discount window. He explains why banks, typically reluctant to borrow from this facility due to stigma, have recently increased their usage. Bill sheds light on how the discount window operates, the implications of heightened borrowing amid market volatility, and why smaller banks might favor it. His insights unravel the evolving dynamics of liquidity management within the banking system.

38:00

Creator website

Episode guests

Bill Nelson

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Episode notes

Intro

2min

Understanding the Fed's Discount Window

10min

Understanding the Federal Reserve's Discount Window Mechanics

4min

Understanding the Discount Window

8min

Navigating the Fed's Discount Window: Insights and Implications

6min

Understanding the Fed's Discount Window

8min

Decoding Discount Lending and Future Insights

2min

The discount window at the Federal Reserve allows banks to borrow money at an above-market rate in exchange for high-quality collateral. The facility is always available to use, but typically nobody does. Not only is the borrowing costlier, there's also a "stigma" associated with its usage, since the perception is that if you use it your institution might be in some kind of financial distress. So why has some entity (or multiple entities) been using it lately? On this episode of the podcast, we speak with Bill Nelson, chief economist at the Bank Policy Institute and a former employee of the Federal Reserve who helped design and manage the discount window for 10 years. We discuss what the program is, its history and how it's used today.

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