Opening the Discount Window

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The Federal Reserve Thursday will release documents revealing which banks came to its emergency lending window during financial crisis.

Banks avoid accessing the "discount window"—which makes short term loans to banks that find themselves temporarily short of funds—when they can. Borrowing from the window is typically a sign that the bank cannot obtain overnight loans from other financial institutions.

The Fed has long resisted disclosing the operations at the discount window. It argues that banks will be hesitant to use the discount window if they are afraid of being stigmatized as weak. But last year the federal courts ruled that the Fed must disclose the information about the use of its discount window. When the Supreme Court refused to review those rulings, the Fed agreed to release the information.

The Fed will is expected to release tens of thousands of documents related to the discount window. They will span a time period from August 7th, 2007 to March 1, 2010.

The Dodd-Frank financial reforms require the Fed to release data about discount window operations—but allows for a two-year lag in the disclosures. A bank accessing the discount window today would not be revealed until 2013.

Traditionally, only commercial banks had access to the discount window. After the rescue of Bear Stearns, the Fed opened the window to Wall Street firms such as Morgan Stanley , Lehman Brothers and Goldman Sachs . The availability of temporary funding, however, proved inadequate to rescue Lehman Brothers, which filed for bankruptcy in September, 2008.


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