Has the Discount Window Mystery been Solved?

Source: Independent Institute
by Peter C Earle

“On January 25th, I wrote about the increasing borrowing activity taking place at the Fed’s discount window. I commented that, despite popular perceptions, not all the borrowing at the discount window is driven by emergencies. But I also added that with rapidly rising interest rates, and the money supply contracting for the first time in decades and possibly the quickest that it ever has, the beginning of a liquidity crisis was nevertheless a distinct possibility. … It is not yet known whether Silicon Valley Bank (SVB) was the firm, or one of several, borrowing at the discount window. There are several things we do know, however. … as of late December, SBV held 57 percent of its total assets in investments while the average among 74 similar competitors was about 42 percent. Of those investments, $108 billion were in US Treasury and agency securities — an asset class which had its worst year on record in 2022.” (03/16/23)