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Discount window stigma during the 2007-2008 financial crisis

  • Armantier, Olivier

    (Federal Reserve Bank of New York)

  • Ghysels, Eric

    (University of North Carolina)

  • Sarkar, Asani


    (Federal Reserve Bank of New York)

  • Shrader, Jeffrey

    (University of California San Diego)

We provide empirical evidence for the existence, magnitude, and economic cost of stigma associated with banks borrowing from the Federal Reserve’s Discount Window (DW) during the 2007-08 financial crisis. We find that banks were willing to pay a premium of around 44 basis points across funding sources (126 basis points after the bankruptcy of Lehman Brothers) to avoid borrowing from the DW. DW stigma is economically relevant as it increased some banks’ borrowing cost by 32 basis points of their pre-tax return on assets (ROA) during the crisis. The implications of our results for the provision of liquidity by central banks are discussed.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 483.

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Length: 54 pages
Date of creation: 2011
Date of revision: 01 Aug 2015
Handle: RePEc:fip:fednsr:483
Note: Previous title: Stigma in financial markets: evidence from liquidity auctions and discount window borrowing during the crisis. For a published version of this report, see Olivier Armantier, Eric Ghysels, Asani Sarkar, and Jeffrey Shrader, "Discount Window Stigma during the 2007-2008 Financial Crisis," Journal of Financial Economics 118, no. 2 (November 2015): 317-335.
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  1. Stavros Peristiani, 1998. "The Growing Reluctance To Borrow At The Discount Window: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 611-620, November.
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