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Discount window borrowing and the role of reserves and interest rates

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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.

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  • Mark A. Carlson & Mary-Frances Styczynski, 2025. "Discount window borrowing and the role of reserves and interest rates," Finance and Economics Discussion Series 2025-015, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2025-15
    DOI: 10.17016/FEDS.2025.015
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    1. Stephen M. Goldfeld & Edward J. Kane, 1966. "The Determinants Of Member‐Bank Borrowing: An Econometric Study," Journal of Finance, American Finance Association, vol. 21(3), pages 499-514, September.
    2. Adam Ashcraft & Morten L. Bech & W. Scott Frame, 2010. "The Federal Home Loan Bank System: The Lender of Next-to-Last Resort?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(4), pages 551-583, June.
    3. James A. Clouse, 1994. "Recent developments in discount window policy," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 965-977.
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