Global Market: Fed's Jefferson says lending facility improvements support market liquidity

Federal Reserve Vice Chair Philip Jefferson said on Tuesday that recent improvements to the central bank’s emergency lending facility have made it easier for financial institutions to access liquidity, helping support financial stability and the implementation of monetary policy.

Speaking at a U.S. Treasury market conference hosted by the Federal Reserve Bank of New York, Jefferson said the discount window provides banks with a reliable source of funding during periods of market stress. This can help reduce the risk of banks being forced to sell Treasury securities and other assets, according to Reuters.

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According to Reuters, the Federal Reserve has introduced several enhancements to the discount window in recent years, including a self-service portal that now processes about 60% of discount window loans.

The portal allows banks to communicate electronically with their regional Federal Reserve bank rather than relying on phone-based processes. Jefferson said banks have reported that the changes have made borrowing from the central bank easier, faster and more efficient.

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Jefferson said the improvements could reduce operational hurdles that have historically discouraged financially healthy banks from using the discount window. Greater willingness to access the facility could also strengthen confidence in the banking system, he added.

The ability of banks to pledge Treasury securities as collateral late in the day and still receive a Federal Reserve loan on the same day is particularly important for maintaining liquidity and financial stability, Jefferson said, Reuters reported.

Jefferson did not comment on the economic outlook or the future path of monetary policy in his prepared remarks.

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