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Can Discount Window Stigma Be Cured?

Author

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  • Olivier Armantier

Abstract

One of the core responsibilities of central banks is to act as “lender of last resort” to the financial system. In the U.S., the Federal Reserve has been operating as a lender of last resort through its “discount window” (DW) for more than a century. Historically, however, the DW has been plagued by stigma—banks’ reluctance to use the DW, even for benign reasons, out of concerns that it could be interpreted as a sign of financial weakness. In this post, we report on new research showing that once a DW facility is stigmatized, removing that stigma is difficult.

Suggested Citation

  • Olivier Armantier, 2024. "Can Discount Window Stigma Be Cured?," Liberty Street Economics 20240531, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:98372
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    File URL: https://libertystreeteconomics.newyorkfed.org/2024/05/can-discount-window-stigma-be-cured/
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    More about this item

    Keywords

    lender of last resort; discount window; stigma; laboratory experiments;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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