Tuesday, December 6, 2011

Update on Discount Window Lending

As an update to this post, Ben Bernanke has sent a letter to the Senate Banking Committee defending himself against news reports from last week. Some of the defense deals with various double counting in the reports, which seemed obvious. Here is an interesting part at the end:
Most of the Federal Reserve's lending facilities were priced at a penalty over normal market rates ...
The Bloomberg story says:
During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008...
Of course, those two statements can both be true.


  1. I don't know where the 0.01% number came from, but there was no TAF lending at this rate. The lowest rate at the TAF was 0.20%, and in all but one auction the rate was 0.25% or higher. The results from each auction are available in an Excel file at:


    I would guess the 0.01% number corresponds to something like that TSLF Options Program, where institutions could bid for the option to borrow securities in the future, and was not a true lending rate.

  2. Excellent. The 0.20% loans are all on the same day, January 2, 2009. What happened then. Otherwise, after that, they are consistently all at 0.25%, just as arbitrage would tell you. No stigma premium. Looks like that Bloomberg article was mostly nonsense.

  3. When can we expect the professor of righteous indignation to recognize that this lending was done at a penalty rate?