Staff Reports
Discount Window Stigma during the 2007-2008 Financial Crisis
Previous title: “Stigma in Financial Markets: Evidence from Liquidity Auctions and Discount Window Borrowing during the Crisis”
2014   January 2011  Number 483
Revised September 2013
JEL classification: G01, G28, G21, G121

Authors: Olivier Armantier, Eric Ghysels, Asani Sarkar, and Jeffrey Shrader

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 2007-08 financial crisis. We find that banks were willing to pay a premium in excess of 44 basis points on average (143 basis points after the bankruptcy of Lehman Brothers) to avoid borrowing from the DW. DW stigma is economically relevant as it increased banks’ borrowing costs by up to 32.5 percent of their net income during the crisis. The implications of our results for the provision of liquidity by central banks are discussed.

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