U.S. banks should incorporate the Federal Reserve's emergency lending facility known as the 'discount window' as part of their contingency funding plans, federal banking regulators said in updated guidance on Friday.
The Federal Reserve building is seen before the Federal Reserve board is expected to signal plans to raise interest rates in March as it focuses on fighting inflation in Washington, U.S., January 26, 2022. REUTERS/Joshua Roberts
The discount window is "an important tool" banks can use to manage liquidity risk, bank regulators including the Federal Reserve and Federal Deposit Insurance Corp said in an updated interagency policy statement. Fed Chair Jerome Powell said at a press conference on Wednesday the central bank found in March that the discount window could be "a little clunky," slowing down borrowing time.
Firms should also ensure that they are familiar with the pledging process for different types of collateral and even consider pre-pledging collateral in case a need for liquidity were to arise quickly, the agencies said.
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