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Economic Brief

May 2010, No. 10-05

Is There Stigma Associated with Discount Window Borrowing?

Renee Haltom and Huberto M. Ennis

There is considerable anecdotal and empirical evidence suggesting that banks are reluctant to borrow from the Fed's discount window. This behavior is commonly explained as the result of stigma attached to this source of funding, though stigma is hard to establish conclusively. New theoretical research provides a formal framework to analyze stigma, including the recent policies introduced to deal with it.

Additional Resources

Armantier, Olivier, Sandra Krieger, and James McAndrews, "The Federal Reserve's Term Auction Facility," Federal Reserve Bank of New York Current Issues in Economics and Finance, vol. 14, no. 5, July 2008.

Bernanke, Ben S., "Liquidity Provision by the Federal Reserve." Speech delivered at the Federal Reserve Bank of Atlanta Financial Markets Conference, Sea Island, Ga.,May 13, 2008.

Duke, Elizabeth A., "Unusual and Exigent: My First Year at the Fed." Speech delivered to the Economics Club of Hampton Roads, Norfolk, Va., February 18, 2010.

Ennis, Huberto M. and John A. Weinberg, "Over-the-Counter Loans, Adverse Selection, and Stigma in the Interbank Market," Federal Reserve Bank of Richmond Working Paper No. 10-07, April 2010.

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