(Bloomberg) -- The Federal Reserve on Thursday said it’s looking to amend the operational practices of its facility typically used by banks and credit unions in times of stress.
The US central bank is seeking comment from the public about the discount window, its oldest liquidity backstop for depository institutions.
The request is related to the collection of legal documentation, the process for pledging and withdrawing collateral, the process for requesting, receiving and repaying loans, the extension of intraday credit and communication practices related to the facility, according to a Thursday statement from the Fed.
Fed policymakers and regulators want banks to be more comfortable using the discount window on a regular basis to ensure they can quickly respond in the event of a financial shock, such as a run on deposits.
Banks have been reluctant to turn to the backstop for fear it would be perceived as a sign of weakness or desperation. Its operations are also seen by many in the industry as clunky, backward and burdensome.
The mission to overhaul the facility has become more urgent in the wake of last year’s collapse of Silicon Valley Bank and other regional lenders. Regulators were shocked by the rapid flight of deposits, but also that SVB and others were ill-prepared to access the discount window, instead relying on credit from the Federal Home Loan Banks, which can push up funding costs for everyone.
Policymakers, including Dallas Fed President Lorie Logan and Governor Michelle Bowman, have argued that institutions’ access to the window and their ability to use it in a time of stress — through periodic testing — could prevent larger problems, such as the regional banking failures of 2023.
At a two-day conference in July on bank funding sponsored by the Dallas and Atlanta Fed banks, Logan suggested the central bank is due for an examination of the discount window, noting that the last full review took place more than 20 years ago.
(Adds policymakers’ public comments beginning in seventh paragraph.)
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