Fed Vice Chair Details Discount Window Modernization and Treasury Market Support
Philip N. Jefferson outlined three dimensions of the upgrades, which he said make liquidity easier for banks to reach and help cushion the Treasury market in periods of stress.
AI illustrationVice Chair Philip N. Jefferson of the Federal Reserve discussed modernization of the central bank's discount window in a speech on September 22, 2026. The program provides liquidity to banks and supports Treasury market functioning, according to remarks published by the Board of Governors of the Federal Reserve System.
The discount window dates back to the founding of the Federal Reserve, which will turn 113 years old in December. It has long been used to support banking system liquidity and implement monetary policy. Jefferson, who oversees the Board's work on discount window policy as Oversight Governor for the Division of Monetary Affairs, stressed that the facility must evolve with the banking system.
Modernization efforts involve a System-wide initiative across the Federal Reserve Banks and the Board. These build on outreach to banks, including a 2024 request for information on discount window operations, as well as other public engagements. Jefferson described progress along three main dimensions: business process improvements, automation enhancements, and coordination with the Federal Home Loan Banks.
Business process improvements focus on efficiency and standardization. All Reserve Banks use the same collateral framework, common loan valuation models, and accept electronic signatures. Earlier this month, the Reserve Banks simplified how banks can pledge loans as collateral. The changes include simplified forms, faster enrollment, automated pledged loan lists, and centralized resources. These updates allow eligible institutions to pledge several loan types while keeping possession of the collateral and maintain robust risk management.
Automation enhancements center on Discount Window Direct, a self-service online portal launched in 2024. It enables banks to request loans, make payments, view information, and submit collateral files electronically. Users have reported it is faster and easier to borrow. More than 60 percent of discount window loan requests are now submitted through the portal, which also offers a messaging feature to replace phone calls.
The third dimension involves collaboration with the Federal Home Loan Banks, which also provide liquidity to banking organizations. Efforts aim to reduce the time needed to re-allocate collateral through improved interoperability. This includes strengthening relationships, operational arrangements, documentation, and joint processes. Jefferson said the Federal Reserve and its FHLB partners believe these efforts have put them in a much better position than three years ago, and that the work is also about building lasting institutional partnerships.
Jefferson highlighted the role of Treasury securities as collateral for discount window loans. Institutions can quickly transfer such securities from Fedwire accounts to their pledge accounts, even late in the day, enabling same-day loans for those with arrangements in place. This reduces the risk of forced sales of Treasury securities during market stress and supports broader money markets, including the repo and federal funds markets.
The speech referenced the March 2020 COVID-19 crisis, when severe Treasury market dysfunction led to a sharp increase in securities pledged to the Federal Reserve for potential discount window loans. The Federal Reserve’s ability to accept Treasury securities quickly proved critical then, he said. The discount window also complements the standing repo operations in relieving funding market pressures. Jefferson said banks have recently turned to the discount window during temporary upward pressure on money market rates, such as at quarter-ends.
The discount window serves as a shock absorber and helps implement monetary policy by allowing banks to borrow within the Federal Reserve's target range rather than at higher rates. Jefferson concluded that the facility "remains ready to lend smoothly and effectively to banks when needed." He said the modernization makes discount window borrowing faster and less operationally burdensome, and that he believes it helps reduce the frictions that may make healthy banks hesitant to use the window.