Discount Window Stigma During the 2007-2008 Financial Crisis
53 Pages Posted: 4 Feb 2011 Last revised: 18 Aug 2015
Date Written: January 22, 2015
Abstract
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 2007-2008 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 ROA during the crisis. The implications of our results for the provision of liquidity by central banks are discussed.
Keywords: Discount Window, Term Auction Facility, Stigma, Crisis, ABCP, TriParty Repo, monetary policy
JEL Classification: G01, G28, G21, G121
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Collective Moral Hazard, Maturity Mismatch and Systemic Bailouts
By Emmanuel Farhi and Jean Tirole
-
Collective Moral Hazard, Maturity Mismatch and Systemic Bailouts
By Emmanuel Farhi and Jean Tirole
-
Will the U.S. Bank Recapitalization Succeed? Eight Lessons from Japan
By Takeo Hoshi and Anil K. Kashyap
-
By Thomas Philippon and Philipp Schnabl
-
By Thomas Philippon and Philipp Schnabl
-
By Thomas Philippon and Philipp Schnabl
-
By Thomas Philippon and Philipp Schnabl
-
By Dinara Bayazitova and Anil Shivdasani
-
On the Real Effects of Bank Bailouts: Micro-Evidence from Japan