Fed reduces term of discount window loans

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Northern Trust posted a short comment yesterday on the Fed’s announcement to reduce the term of discount window loans from 90 to 28 days, effective January 14, 2010. To put this decision in historical perspective, the Fed increased the maturity of discount window loans from overnight to 30 days on August 17, 2007, and again to 90 days on March 16, 2008.

Asha Bangalore, economist of Northern Trust, argued that the need for discount window loans had decreased significantly from the period following the collapse of Lehman Brothers (see graph below). “This [Fed's announcement] marks the beginning of a gradual withdrawal of the extraordinary support the Fed has extended to the global financial system as signs of stability have emerged,” she said.

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Source: Northern Trust – Daily Global Commentary, November 17, 2009.

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