NY Fed report warns discount window stigma may never go away

May 13 (Reuters) – The Federal Reserve needs to rethink how it provides swift liquidity to banks, a report from the Federal Reserve Bank of New York said on Monday.

That’s because despite many years of trying to reform the discount window, the long-standing stigma around this facility “has clearly become deeply engrained among practitioners and it may be impossible to change that norm,” wrote economists Olivier Armantier and Charles Holt. “Even extreme interventions, such as making the [discount window] free, may not be sufficient to fully cure stigma,” they wrote, opens new tab.The discount window is a Fed facility that exists to provide collateralized loans to deposit-taking banks. While the discount window historically has been thought of as a source of emergency funding, the Fed has changed the terms on the tool to make it more attractive and has encouraged banks to tap it when their respective liquidity is scarce. What’s more, the Fed is currently in a push to make sure banks are signed up and ready to use the discount window.