Discount Window and Standing Repo Facilities
The Fed's lender-of-last-resort tools — discount window stigma, the SRF created July 2021, and what these facilities actually do during stress
On March 9-10, 2023, Silicon Valley Bank — the 16th-largest U.S. bank by assets at the start of the week — saw approximately $42 billion of deposit withdrawals on a single day, with another $100+ billion of withdrawal requests queued and unable to settle before the bank was placed into FDIC receivership on the morning of Friday March 10 (per the Federal Reserve Board's April 28 2023 'Review of the Federal Reserve's Supervision and Regulation of Silicon Valley Bank' at federalreserve.
gov/publications/files/svb-review-20230428.pdf, hereafter 'the Fed SVB Review'). On that final morning, SVB's leadership scrambled to access two Fed lender-of-last-resort facilities: the discount window and the Standing Repo Facility (SRF) — the same facilities this lesson is about.
The Fed SVB Review confirmed that operational issues — collateral pre-pledging not having been completed, internal authorizations not in place, the speed of the run outpacing the bank's operational capacity — meant SVB was unable to draw on either facility in time to stop the run.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 6 sections and ends with 6 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Discount-window stigma — why banks won't use the facility even when they should
- 2From facility design to ceiling-rate effectiveness
- 3Fed lender-of-last-resort facilities — purpose, eligibility, and operational characteristics
- 4March 9-12, 2023 — when stigma and operational gaps caught up with SVB, and the BTFP filled the response gap
- 5Where to see this on the platform
- 6Summary