MNI BRIEF: Banks Should Be Ready To Use Discount Window- Logan
Dallas Federal Reserve Bank President Lorie Logan said Wednesday the central bank must ensure the discount window continues to provide ready access to liquidity and U.S. banks should be prepared to borrow regularly from the Fed.
"In my opinion, every bank in America should be fully set up at the window as part of its liquidity toolkit," she said according to prepared remarks. "That means completing legal documents and establishing collateral arrangements well before any funding need arises. And it means testing the plumbing—practicing the steps needed to take out and repay a loan and to move collateral between the Fed and other funding sources."
Logan said bankers and the Fed have already made substantial progress toward enhancing operational readiness at the window. More than 5,000 depository institutions have signed the necessary legal documents and USD3 trillion in collateral is pledged, up from USD1 trillion last year, she said. (See: MNI INTERVIEW: Fed Should Mandate Readiness Of Discount Window)
The Dallas Fed chief also said federal deposit insurance coverage limits might be too low. "For starters, the economy has grown substantially since Congress last raised the limit in 2008. If the limit had increased since then in line with nominal gross domestic product, it would be nearly half a million dollars today," she said, up from the USD250,000 limit today.