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The Fed’s Discount Window Lending at Levels Not Seen Since The Great Recession

The Discount Window lending is at levels not seen since the Great Recession, with banks borrowing billions of dollars in order to shore up their balance sheets and maintain sufficient liquidity.

The troubled banking industry continues to struggle to regain its footing following the collapse of SVB, Signature Bank, and Credit Suisse. The banks that were holding long-duration assets saw their value collapse when they found themselves upside down after a rapid rise in interest rates. Banks using the window are kept anonymous as there is a legitimate stigma issue from finding out who’s in need of short-term liquidity.

The Federal Reserve‘s Discount Window is a mechanism that allows banks and other financial institutions to borrow money from the Fed in order to meet short-term liquidity needs. This lending activity is typically viewed as a last resort for banks that are unable to obtain funding through other means, and as such, it tends to be relatively rare.

During the Great Recession of 2008-2009, the Fed’s Discount Window saw a significant increase in usage as banks struggled to maintain adequate liquidity in the face of widespread financial turmoil. In the years that followed, however, usage of the Discount Window declined as the economy recovered and financial conditions stabilized.

Matthew John McNally
Matthew is an enrolled agent with two decades of tax planning, compliance, and advisory experience, much of it at Big Four accounting firms, where he guided clients with wide-reaching financial concerns.