A Model of Stigma in the Fed Funds Market
نویسندگان
چکیده
It is often the case that banks in the US are willing to borrow in the fed funds market (the interbank market for funds) at higher rates than the ones they could obtain by borrowing at the Fed’s discount window. This phenomenon is commonly explained as the consequence of the existence of a stigma effect attached to borrowing from the window. We provide a model where market participants may regard discount window borrowing as a negative signal about the financial strength of the borrowing bank. Under certain conditions, which we explicitly identify and discuss, some banks in our model, just as in the data, are willing to borrow in the market at higher rates than the ones they could obtain at the discount window. Corresponding author: [email protected]. The views expressed in this article are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Richmond or the Federal Reserve System.
منابع مشابه
Over-the-counter loans, adverse selection, and stigma in the interbank market ¬リニ
It is often the case that banks in the US are willing to borrow in the fed funds market (the interbank market for funds) at higher rates than the ones they could obtain by borrowing at the Fed’s discount window. This phenomenon is commonly explained as the consequence of the existence of a stigma effect attached to borrowing from the window. Most policymakers and empirical researchers consider ...
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