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”
January 2011   Number 483
Revised: August 2015
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 of around 44 basis points across funding sources (126 basis points after the bankruptcy of Lehman Brothers) to avoid borrowing from the DW. DW stigma is economically relevant as it increased some banks’ borrowing cost by 32 basis points of their pre-tax return on assets (ROA) during the crisis. The implications of our results for the provision of liquidity by central banks are discussed.

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