By Pete Schroeder
WASHINGTON (Reuters) – The Federal Reserve said on Thursday it was seeking feedback on how it operates its “discount window,” which is intended to provide emergency lending to banks in times of stress.
The Fed said it wanted comments on various aspects of how banks deal with the window, including the collection of legal documentation, pledging and withdrawing collateral, and extending credit. The central bank said the input will inform its efforts to keep the tool “effective and efficient.”
The solicitation marks the latest effort by the Fed to tweak the discount window, which banks have long resisted utilizing out of concern that it carries a stigma that could undermine stability in times of stress.
The Fed’s inquiry does not include any suggested changes, but central bank officials and other regulators have discussed making changes to the discount window to improve its utility, such as requiring banks to place cash or other assets with the Fed as collateral in case emergency borrowing is needed in the future. The Fed is giving the public 90 days to provide feedback.
Fed data released in April found that less than half of U.S. banks had established borrowing capacity via pledged collateral at the discount window, despite persistent calls from regulators that it can be a helpful tool to navigate stressful periods.
