Fed’s Jefferson says discount window upgrades aid stability

Investing.com -- Federal Reserve Vice Chair Philip Jefferson said Tuesday that recent improvements to the central bank's emergency lending facility have made it easier for financial institutions to access funds, supporting market liquidity and financial stability.

The discount window now provides banks with a more reliable source of liquidity and acts as a shock absorber during periods of market stress by reducing the risk of forced sales of Treasury securities, Jefferson said in prepared remarks for a US Treasury market conference at the New York Fed.

The Fed has introduced several enhancements to the lending facility in recent years. A new self-service portal now handles 60% of discount window loans and allows banks to communicate with their regional Fed bank electronically rather than by phone, Jefferson said.

Banks report the system makes it easier, faster, and more efficient to borrow from the central bank, he said.

Jefferson said these improvements help reduce the frictions that may make banks hesitant to use the window when they are healthy and reinforce overall confidence in the banking system.

The ability to pledge Treasury collateral late in the day and receive a loan from the Fed that same day is critical not just for the banks themselves but for maintaining financial stability as a whole, he added.

Jefferson did not address the economic or monetary policy outlook in his prepared remarks.

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