Jefferson Seeks to Shed Stigma on Federal Reserve's Discount Window

The Federal Reserve's discount window has been around since 1913, but Vice Chair Philip N. Jefferson wants to change how banks treat it.

The discount window was created as a tool for banks to borrow from in times of stress, but stigma made banks reluctant to use it. To modernize the system, the Fed launched 'Discount Window Direct,' an online portal that allows banks to request loans 24/7.

The Fed also updated its collateral-margin tables and improved the Borrower-in-Custody program, giving banks more flexibility in how they pledge collateral when borrowing from the window. Additionally, the Fed explored collateral interoperability with Federal Home Loan Banks to make it easier for institutions to move pledged assets between different lending facilities.

The Discount Window Preparedness Act would require banks with over $10 billion in assets to conduct quarterly or semi-annual tests of their ability to borrow from the discount window. Jefferson believes that modernizing the discount window is crucial for Treasury market functioning, as when banks can't easily access short-term funding, they pull back from market-making activities.