KENNEDY, WARNER INTRODUCE BIPARTISAN LEGISLATION TO MODERNIZE THE FEDERAL RESERVE DISCOUNT WINDOW

The following information was released by Louisiana Senator John Kennedy:

Sen. John Kennedy (R-La.), a member of the Senate Banking Committee, today joined Sen. Mark Warner (D-Va.) in introducing the Discount Window Preparedness Act, a bipartisan bill to reduce stigma around the Federal Reserve discount window and improve its effectiveness as a liquidity tool for commercial and community banks.

First established in 1913 with the creation of the Federal Reserve, the discount window provides short-term loans to depository institutions to support liquidity and strengthen the stability of Americas banking system.

Borrowing at the Feds discount window has become stigmatized to a point where Silicon Valley Bank and Signature Bank were ill-prepared when attempting to gain access to it in times of need. The Federal Reserves discount window exists to be the lender of last resort, but banks need to be ready to use it before the wheels come off. The Discount Window Preparedness Act would help modernize the discount window, protect depositors, and keep credit flowing to our families and small businesses , said Kennedy.

The failures of Silicon Valley Bank and Signature Bank in 2023 marked two of the largest bank failures in U.S. history. Those failures highlighted the need to reform the Federal Reserves discount window for the 21st century economy, where bank runs can occur over hours, rather than days. Our bipartisan legislation will implement key reforms to make sure that banks can actually use the discount window, reduce the unnecessary stigma associated with that use, and improve the windows operations to meet the challenges of the digital age. We need to modernize the window and return this important liquidity tool to its intended role , said Warner.

Background :

The Discount Window Preparedness Act would:

Mandate test usage of the discount window for insured depository institutions with $10 billion or more in assets, with testing frequency based on institution size.

Require regulators to reflect a banks ability to use the discount window in liquidity evaluations.

Require the Federal Reserve Board to modernize discount window operations.

Require the Federal Reserve to harmonize its collateral process with the Federal Home Loan Bank System.