The Federal Reserve Bank of New York'​s "Liberty Street Economics" blog posted a piece titled, "Discount Window Stigma After the Global Financial Crisis." It begins, "The rapidity of deposit outflows during the March 2023 banking run highlights the important role that the Federal Reserve'​s discount window should play in strengthening financial stability. A lack of borrowing, however, has plagued the discount window for decades, likely due to banks' concerns about stigma -- that is, their unwillingness to borrow at the discount window because it may be viewed as a sign of financial weakness in the eyes of regulators and market participants. The discount window has been reformed several times to alleviate this problem." It tells us, "​Although the presence of stigma during the great financial crisis has been documented empirically, we do not know whether stigma has remained since then. In this post, based on a recent Staff Report, we fill this gap by using transaction-​level data from the federal funds market to examine whether the discount window remains stigmatized today." The brief states, "Empirically, stigma may be identified by the presence of a spread over the discount window primary credit rate that a bank is willing to pay to avoid borrowing at the window. However, a bank'​s willingness to pay is not observable. Instead, we observe '​realized stigma:' how much more a bank actually pays above the primary credit rate to borrow. Realized stigma and stigma are not equivalent. Realized stigma provides a lower bound on the extent of stigma. In particular, even if a bank does not actually pay a premium (​for instance, because it borrows on the interbank market below the primary credit rate, thus implying no realized stigma), it may have been willing to do so ex-​ante. Evidence of realized stigma, nevertheless, is informative: it signifies that stigma is indeed present." The blog concludes, "In our paper, we follow the economic literature and measure realized stigma by looking at transactions in the federal funds market, the over-​the-​counter overnight U.​S. interbank market for funds held by banks at the Fed; we interpret a bank purchasing federal funds above the primary credit rate as evidence of stigma. To better understand the determinants of realized stigma, we conduct a statistical analysis. The results reveal a highly statistically and economically significant persistence in realized stigma: banks that borrow federal funds above the discount window rate are about 40 percent more likely to do so again the following month. Consistent with stigma, banks that do not visit the discount window are significantly more likely to show subsequent realized stigma." It adds, "Looking at the post-​June 2022 period, when stigma became prevalent, some of these determinants changed; in particular, banks with lower cash holdings and higher uninsured deposit liabilities became more likely to exhibit realized stigma. In this post, we present evidence of discount window stigma in the years since the global financial crisis using transaction-​level data from the federal funds market. Evidence of realized stigma is particularly strong around periods of financial market turmoil, such as during the COVID-​19 pandemic and the March 2023 banking turmoil. Our results suggest that discount window stigma is still an issue, potentially limiting the discount window'​s ability to ameliorate financial stability in times of turmoil."

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