Sept 22 (Reuters) – Federal Reserve Vice Chair Philip Jefferson on Tuesday said the US central bank’s recent improvements to its emergency lending facility make it easier for financial institutions to use, supporting market liquidity, financial stability, and monetary policy implementation.
“By providing banks with a reliable source of liquidity, the discount window serves as a shock absorber during periods of market stress by reducing the risk of forced sales of Treasury securities,” Jefferson said in remarks prepared for delivery to a US Treasury market conference at the New York Fed.
The Fed has made a number of enhancements to the lending facility in recent years, including the introduction of a self-service portal that now handles 60% of discount window loans and allows banks to communicate with their regional Fed bank electronically instead of by phone, he said. Banks say the system makes it easier, faster, and more efficient to borrow from the central bank, he added.
“These improvements, I believe, help reduce the frictions that may make banks hesitant to use the window when they are healthy and reinforce overall confidence in the banking system,” Jefferson said. The ability to pledge Treasury collateral even late in the day and receive a loan from the Fed that same day is critical not just for the banks themselves but for maintaining financial stability as a whole, he added.
Jefferson did not address the economic or monetary policy outlook in his prepared remarks.
(Reporting by Ann Saphir; Editing by Paul Simao)
