A bill introduced last week by Sen. Mark Warner (D-Va.) would mandate that larger depository institutions regularly engage in test borrowing at the Federal Reserve discount window, and that the Fed take steps to modernize the program’s operations. The Discount Window Enhancement Act seeks to improve the functioning of the discount window following last year’s failure of Silicon Valley Bank and two other institutions, according to Warner.
According to a summary by Warner’s office, the bill would require financial institutions with more than $100 billion in assets to engage in test borrowing with the discount window on a quarterly basis. Institutions between $10 billion and $100 billion in size would test on a semi-annual basis. There would be no testing mandate for institutions under $10 billion. Regulators would be required to “give credit” in their evaluations of bank liquidity preparedness to institutions that can use the discount window successfully.
The bill also would require the Fed to “modernize” the discount window operations through enhancements such as providing an online platform for obtaining advances and extending the window’s operating hours. It would require the Fed to “simplify and harmonize” collateral processes with the Federal Home Loan Bank System, review the weekly reporting of its balance sheet activities, and study and report to Congress on the stigma financial institutions face for using the window.
“My 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 window’s operations to meet the challenges of the digital age,” Warner said. “We need to modernize the window and return this important liquidity tool to its intended role.”
