WASHINGTON, D.C.— Shayna Olesiuk, Director of Banking Policy, issued the following statement in connection with Better Markets’ comment letter to the Federal Reserve’s request for information (RFI) regarding operational aspects of the discount window.

“The banking system needs a safety valve that actually works. The discount window is intended to provide a vital backstop by allowing banks to borrow additional liquidity during times of stress. But the discount window is not doing its job because banks are unprepared and unwilling to use it, which could jeopardize our financial system during the next crisis. That’s why the Fed should look beyond operational issues and require all banks to meet minimum requirements to borrow from the discount window.

“The most concerning issue with the discount window is the substantial number of banks that have failed to complete even the basic steps to qualify to borrow. Nearly 20 percent of banks have not even signed up for discount window access and nearly 60 percent have not pledged collateral. These were some of the exact problems that the Fed found to have led to Silicon Valley Bank’s failure in March 2023. There is simply no way for the discount window to help prevent the next financial crash if banks are not signed up for the program.

“Second, there is a severe stigma associated with borrowing from the discount window because it is seen as something only weak banks do as a last gasp before failure. In fact, studies have shown that banks will pay more to use other, less stigmatized, sources of liquidity and would avoid discount window borrowings even if it is free.

“Main Street Americans deserve better; therefore, we recommend that the Fed require all banks to complete the basic steps to borrow from the discount window. The Fed should also look beyond operational improvements to address and overcome the discount window’s stigma.”

You can find more information about these issues in our comment letter.

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.