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MNI: Fed Considering Discount Window Readiness Rule - Barr

(MNI) WASHINGTON

Improving the functionality of the discount window would help address lessons about liquidity learned last spring, Fed regulator says.

Federal Reserve Governor Michael Barr said Monday the Fed is working actively to improve the functioning of the discount window after last year's regional bank crisis, including considering requiring certain banks maintain a minimum amount of reserves and collateral at the discount window.

"We are exploring a requirement that banks over a certain size maintain a minimum amount of readily available liquidity with a pool of reserves and pre-positioned collateral at the discount window, based on a fraction of their uninsured deposits," he said. "Incorporating the discount window into a readiness requirement would also reemphasize that supervisors and examiners view use of the discount window as appropriate and unexceptional under both normal and stressed market conditions."

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Federal Reserve Governor Michael Barr said Monday the Fed is working actively to improve the functioning of the discount window after last year's regional bank crisis, including considering requiring certain banks maintain a minimum amount of reserves and collateral at the discount window.

"We are exploring a requirement that banks over a certain size maintain a minimum amount of readily available liquidity with a pool of reserves and pre-positioned collateral at the discount window, based on a fraction of their uninsured deposits," he said. "Incorporating the discount window into a readiness requirement would also reemphasize that supervisors and examiners view use of the discount window as appropriate and unexceptional under both normal and stressed market conditions."

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