The Fed Tells Banks Not to Be Shy About Asking It for Money

When Brookline Bancorp Inc. needs to borrow short-term cash quickly — part of the regular course of business for the Boston-based lender — it has a range of options. One source of cheap money it’s loath to turn to, however, is the Federal Reserve for fear of setting off alarm bells.

“This is the safety net for the financial system and for individual banks,” said co-president and chief financial officer Carl Carlson. “If you have to use the safety net, that means you missed a rung on the swing and means you needed something.”

“There’s definitely a stigma,” he added.

Policymakers in Washington want to change that. Nearly a century after the Fed first tried to discourage regular borrowing from its traditional backstop program, known as the discount window, officials are trying to rebrand the primary credit facility as a source for everyday liquidity.

That mission has become more urgent in the wake of the collapse of Silicon Valley Bank and other regional lenders in the first half of 2023. Regulators were shocked by the rapid flight of deposits, but also that SVB and others were ill-prepared to even access the discount window, instead relying heavily on borrowings from the Federal Home Loan Banks, which can push up funding costs for everyone.

Fed's Discount Window Is Seldom Used Except During Crises