Barr: Requiring discount window readiness could break ‘stigma’

“What we’re hoping is that a requirement for discount window preparedness, pre-positioning of collateral, testing, will help to reduce stigma because we’re obviously sending a signal that we want banks to use this.”

SVB before its March 2023 collapse had not recently tested its discount window access nor did it have adequate collateral posted there; though neither would have saved SVB, regulators say borrowing from the Fed could have allowed a more orderly failure and reduced the broader banking turmoil that ensued.

U.S. financial regulators have since stepped up efforts to encourage banks to be ready to borrow in an emergency from the central bank. Banks in turn have boosted the collateral they stow at the Fed’s discount window, to $2.6 trillion as of the end of last year, from $1.9 trillion a year earlier.