【美聯(lián)儲】貼現(xiàn)窗口借款以及準備金和利率的作用-2025.2

FinanceandEconomicsDiscussionSeries

FederalReserveBoard,Washington,D.C.

ISSN1936-2854(Print)

ISSN2767-3898(Online)

Discountwindowborrowingandtheroleofreservesandinterestrates

MarkCarlsonandMary-FrancesStyczynski

2025-015

Pleasecitethispaperas:

Carlson,MarkandMary-FrancesStyczynski(2025).“Discountwindowborrowingandtheroleofreservesandinterestrates,”FinanceandEconomicsDiscussionSe-ries2025-015.Washington:BoardofGovernorsoftheFederalReserveSystem,

/10.17016/FEDS.2025.015

.

NOTE:StafworkingpapersintheFinanceandEconomicsDiscussionSeries(FEDS)arepreliminarymaterialscirculatedtostimulatediscussionandcriticalcomment.TheanalysisandconclusionssetfortharethoseoftheauthorsanddonotindicateconcurrencebyothermembersoftheresearchstafortheBoardofGovernors.ReferencesinpublicationstotheFinanceandEconomicsDiscussionSeries(otherthanacknowledgement)shouldbeclearedwiththeauthor(s)toprotectthetentativecharacterofthesepapers.

Discountwindowborrowingandtheroleofreservesandinterestrates

MarkCarlsonandMary-FrancesStyczynski*

TheFederalReserve’sdiscountwindowisatoolthatcanprovidereservestobanksataratesetbytheFederalReserve,thediscountrate.Duringthepastseveralyears,therehavebeenlargefluctuationsinthelevelofreservesinthebankingsystemandintheleveldiscountraterelativetootherinterestrates.Inthispaper,weexplorehowbanks’holdingsofreserves,especiallyrelativetotheamountofreservesthatbanksprefertohold,andtheinterestrateavailableatthediscountwindowinfluenceborrowingatthewindow.Wefindthatbanks

borrowmorewhentheirreservesarelowandwhenthediscountrateisrelativelyattractive,althoughthesizeoftheseeffectsdependsonabank’ssize,FHLBmembershipstatus,andfinancialcondition.

February18,2025

*Carlson:Mark.a.carlson@.

Styczynski:mary-frances.styczynski@.

WethankElizabethKleeforhelpfulcomments.TheviewsexpressedherearesolelythoseoftheauthorsandarenotnecessarilythoseoftheBoardofGovernorsoftheFederalReserveSystemoritsstaff.

-1-

ThediscountwindowisatoolthattheFederalReserveusestolendtodepositoryinstitutionsandprovidethemwithreserves.Thewillingnessofdepositoryinstitutionstoobtainreservesfromthediscountwindowinfluencestheeffectivenessofthewindowinrespondingtotightnessinbankfundingmarketsandensuringthesmoothoperationofthebankingsystem(Clouse1994,2000).Ofcourse,depositoryinstitutionsmayobtainreservesandshort-termfundingfromothersources,andtheirpreferenceforusingthoseothersourcesversusthediscountwindowdependson,amongotherthings,therelativepriceofdoingso.

Thispaperinvestigatestheextenttowhichtheuseofthediscountwindowbybanksisaffectedbythereserveholdingsofthebanks,especiallywhencomparedtolevelsthattheyappeartoprefertohold,andtheinterestrateatthediscountwindowcomparedtointerestratesonothersourceoffunds,suchasfromtheFederalHomeLoanBanks(FHLBs).1Inparticular,weanalyzewhetherbankborrowingduringaparticularweekisrelatedtothereservesheldatthestartoftheweekandtheprevailinginterestrates.Wefocusonthesetwoitemsastheyarerelativelyhighfrequency;asmostdiscountwindowborrowingisovernightitispresumablyrelatedtocurrentconditionsatthebankandinmoneymarketsasmightbestbecapturedbyhigherfrequencymeasures.Weconsiderthisquestionduringtheperiodfrom2016to2024.Thiswasaperiodinwhichthelevelofreserveschangednotablyandinwhichtheprimarycreditrate,theinterestrateontheFederalReserve’smainlendingfacilityvariedfairlysubstantially.Thesechangesoccurredasthestanceofmonetarypolicychanged,aswellasinresponsetofinancialmarketstresses,suchasthoseassociatedwiththeonsetoftheCovid-19pandemicandpublichealthresponsetostopitsspread,inwhichtheFederalReservesoughttoensurethatthefinancialsystemhadaccesstoliquidity.

Wefind,nottoosurprisingly,thatbothinterestratesandbankholdingsofreservesmattered.However,thefairlyhighsensitivitywefindisnotable.Indeed,withrespecttointerestrates,wefindsharpshiftsinborrowingresponsivenessastheprimarycreditratebecomesjustslightlymoreattractivethanotherinterestrates.Wealsofindthatborrowingdecisionsarequiteresponsivetotheextenttowhichthelevelofreservesthebankisholdingatthestartoftheweekisaboveorbelowtheaveragelevelofreservesthatthebankhadbeenholdingovertheprecedingfourmonths.Inaddition,itisnotablethatwefindthatreservesmatteratallgiventheabundantlevelofreservesthatprevailedformuchofoursampleperiod.

Inaddition,weareabletoexplorewhethertheresponsivenesstointerestratesandreservelevelsvariesoversub-sampleperiodsandfordifferentgroupsofbanks.Mediumsizedbanks—thosewithassetsbetween$1billionand$10billion—arethemostresponsivetothedevelopmentsregardingreserves.Largerbanksareparticularlyresponsivetorelativeinterestrates.FHLBmemberbanksaremoreresponsivetotheprimarycreditraterelativetotheratesofferedbytheFHLBs,thoughthedifferenceinresponsivenessisnotassubstantial

1Theinstitutionseligibletoborrowatthediscountwindowaredepositoryinstitutions,whichinclude

commercialbanks,creditunions,branchesandagenciesofforeignbanks.Theanalysisinthispaperfocusesspecificallyoncommercialbanks,savingsandloaninstitutionsandU.S.branchesandagenciesofforeign

banks.Creditunionsareexcludedfromtheanalysis.

-2-

asonemighthaveexpected.Wealsofindevidenceconsistentwiththeideathatbanksborrowovernighttoadjustreservepositions,butusetermprimarycreditforotherreasons.

Weareabletoaggregateourresultstothelevelofthebankingsystem.Thatallowsustoconnecttheaggregatelevelofreservestothenumberofbanksthatborrowinaparticularweek.Westartbyfirstverifyingthatinstitutionsaremorelikelytoenduphavinglowerlevelsofreservesrelativetotheaveragelevelsthattheyhadheldonaverageduringtheprecedingfourmonthswhenreservesarelowerrelativetobankingsystemdeposits.Wethenestimatetherelationshipbetweenthenumberofdepositoryinstitutionsthatborrowinaparticularweektothelevelofreservesandtherelativeattractivenessofthediscountwindow.Wefindthatthissimplemodeldoesprovideageneralindicationofthenumberofbankslikelytoborrow.

Thesefindingscomplementpreviousresearchonthefactorsaffectingbankdecisionsaboutborrowingfromthediscountwindow.Forinstance,usingquarterlyCallReportdata,EnnisandKlee(2024)findthatbanksthatholdlessreservesrelativetotheirassetsborrowmoreinnormaltimes.Findingsthatborrowingisrelatedtobothlowlevelofreservesrelativetoassetsandrelativetorecentlevelsofreserveholdingsprovidecomplementary,butdiffering,lensonhowtheavailabilityofreservesshapesborrowing.Otherstudies,suchasAshcraft,BechandFrame(2010)findthatinterestratesmatteredduringstress;wefindthattheymatteredduringthenormalcourseofbusinessaswell.Finally,ourfindingsthatreservesmattersuggestthatsomethingliketheborrowingfunctionsrelatingreservesandmoneysupplytodiscountwindowuseestimatedbyGoldfeldandKane(1966),Dutkowsky(1993),andDow(2001)stillmatter,evenwiththelevelofreservesbeingsubstantiallylargerthanhadbeenthecasepriorto2008.

Thepaperproceedsasfollow.Section2providesbackgroundonthediscountwindowanddiscussesrelatedliterature.Section3describesthedataweuseandpresentstheanalysisofthefactorsinfluencingborrowingbyindividualbanks.Section4discussesaggregatingtheanalysistothesystemlevel.Section5concludes.

Section2.Backgroundandrelatedliterature

Section2.1Backgroundonthediscountwindow

Thediscountwindowcanbeusedtolendreservestodepositoryinstitutions(DIs).Alldiscountwindowloansareinitiatedattherequestofthedepositoryinstitution.Whenextendingaloan,theFederalReservesimplycreditstheaccountthattheDImaintainsattheFederalReserve.ThoseadditionalreservesmaybeusedbytheDItomakepayments.AlldiscountwindowloansmustbesecuredtothesatisfactionofthelendingReserveBank;manybankassetsareeligibletoserveascollateral,includingmanytypesofloansandmostinvestment-gradesecurities.

-3-

Therearethreediscountwindowlendingprograms.Themainlendingprogram,andthefocusofthispaper,istheprimarycreditprogram.PrimarycreditisavailabletoDIsthatareingenerallysoundfinancialcondition.SecondarycreditprovidesloanstoDIsthatarenoteligibleforprimarycredit.SeasonalcreditisavailabletosmallerDIsthatdemonstrateconsiderableseasonalvolatilityintheirbalancesheets.

Therehavebeenavarietyofchangestothetermsonprimarycreditloanssince2016.Theinterestratechargedonprimarycreditloansistheprimarycreditrate.ThatratemovesastheFederalReserveadjuststhestanceofmonetarypolicy.In2016,thatratewasset50basispointsabovethetopoftherangethattheFederalReservemaintainsforthetargetforthefederalfundsrate(thattargetisthemainreferencepointwhensettingmonetarypolicy)andtheratewouldmoveupordownasthetargetforthefederalfundsratewaschanged.InMarch2020,duringthefinancialturmoilassociatedwiththeonsetoftheCovid-19pandemic,theprimarycreditratewasadjustedsothatitwaspositionedatthetopoftherangeforthetargetfederalfundsrate.Thateasedaccesstoliquidityandcontributedtoeasingfinancialmarketstresses.

Themaximummaturityofprimarycreditloanshasalsobeenincreased.In2016,therewasastrongpresumptionthatprimarycreditloanswouldbeovernight.InMarch2020,inadditiontoreducingtheprimarycreditrate,theFederalReserveannouncedthatDIswouldbeabletoborrowfromthediscountwindowforperiodsaslongas90days.

Theprimarycreditrateisafloatingrate.SoifanDIhasatermdiscountwindowloanandtheFederalReserveraisestheprimarycreditratewhilethatloanisoutstanding,theinterestratetheDIpayswillreflecttheearlierrateforthedaystheloanwasoutstandingpriortothechangeintherateandthenewratewhiletheloanisoutstandingfollowingtheratechange.2Discountwindowloansarepre-payablesothattheDIcanrepaytheloanifthenewprimarycreditrateisunattractive.

Section2.2Backgroundonreserves

WhilethediscountwindowisonewaythattheFederalReserveprovidesreservestothebankingsystem,itisnottheonlysource.WhentheFederalReserveconductsopenmarketoperationsandpurchasesTreasuryoragencysecurities,thatincreasestheamountofreservesinthesystem.SincetheGlobalFinancialCrisisin2008,theFederalReservehassuppliedalargeamountofreservestothebankingsystem.Thisgenerallyabundantlevelhaskeptmoneymarketrates,includingtheeffectivefederalfundsrate,inthevicinityoftheinterestratethattheFederalReservepaysonthebalancesthatbanksleaveintheiraccountsattheFederalReserve.

Between2016and2019,theFederalReservewasreducingtheamountofreservesinthesystem.In2019,theFederalReservestoppedreducingtheamountofreservesandbegan

2Weconsideredtheroleofexpectationsaboutthepathofinterestratesintotheanalysisbylookingatwhethertheinclusionofovernightindexswaprateswiththree-monthmaturitiesprovidedadditionalinformation.

However,wedidnotfindanyevidencethatitdid.

-4-

toholdthatamountroughlysteady.Duringthepandemic,andtoprovideliquiditysupportto

thebankingsystemandtoeasemonetaryconditionstosupporttheeconomy,theFederalReservepurchasedasubstantialamountofsecuritiesandnotablyincreasedthesupplyofreservesinthesystem.Since2021,theFederalReservehasonceagainbegunreducingthereserves.

DIsinneedofreservesareabletoobtainthemfromotherDIs(bytradinginthefederalfundsmarket)orfromotherproviders.(Severalgovernmentsponsoredenterprises,includingtheFederalHomeLoanBanks,holdaccountbalancesattheFederalReserveandareabletolendthemtoDIsinthefederalfundsmarket.)Whenreservesaremoreplentiful,DIsinneedofreservesmaymoreeasilyborrowthemforotherprivatesectoractors.Whenreservesarescarcer,DIsinneedwouldbelessabletoborrowthemfromothersandaremorelikelytohavetoturntotheFederalReserve.

Section2.3Relatedliterature

Arangeoffactorshavebeenfoundintheliteraturetoinfluencediscountwindowborrowing.Onestrandofrelevantresearchhasfoundthatinterestrateshavealsoplayedaroleinshapingborrowing.Forinstance,Ashcraft,Bech,andFrame(2010)findthatborrowingatthediscountwindowincreasednotablyin2008whenratesonFHLBadvancesmovedabovetheprimarycreditrate.Thatfindingsuggeststhatdepositoryinstitutionsaresensitivetohowthepricingofthediscountwindowcomparestoclosesubstitutes.ThatthisfindingisrelatedtoFHLBratesisanimportantreasonthatwecomparetheprimarycreditratetoFHLBadvanceratesinthisanalysis.

Thelevelofreservesislikelytomatter.AckonandEnnis(2017)notethatborrowingwaslessfrequentintheyearsaftertheGlobalFinancialCrisis,whenreservesweremoreplentiful,thantheyearsprecedingit.However,theynotethatanumberofotheraspectsofthefinanciallandscapehadchangedaswell.Intheiranalysisofbankleveldeterminantsofborrowing,EnnisandKlee(2024)findthatbanksthatholdfewerreservesasashareoftheirassets,asindicatedinthequarterlyCallReports,weremorelikelytoborrow,althoughEnnisandKleenotethatthiseffectisfairlymodestinmagnitude.3Thesefindingsprovideonemotivationfortheanalysisinthispaperthatlooksatmorehighfrequencydataonreserves.EnnisandKleelookatotherbankbalancesheetitemsandfindthatbanksthatrelyonlessstablefundingsourcesandthathaveriskierandmoreilliquidassetsaremorelikelytousethediscountwindow.TheyfurtherfindthatbanksthatusethediscountwindowaremorelikelytoalsoborrowfromtheFHLBs;thatfindingagainsupportsourcomparisonoftheprimarycreditratetointerestratesonFHLBadvances.Finally,theyfindthatusevariesbybanksizewithlargerbanks,allelseequal,beingmorelikelytoborrowfromthediscountwindowthansmallerbanks.

3Moreover,EnnisandKleefindthatbanksthatgainaccesstothediscountwindowtendtoincreasetheirlevel

ofreserves.Thatsuggestsitisnotthecasethatbanksreducereserveholdingsbecauseofbetteraccessprovidedbythediscountwindow.

-5-

Thereisafair-sizedliteratureontherelationshipbetweendiscountwindowborrowing,moneymarketinterestrates,andreservespriorto2002andtheadoptionofanabovemarketdiscountwindowratewiththeintroductionofprimarycredit.Thisrelationshipwasoftenreferredtoastheborrowingfunctionandwasstudiedby,amongothers,GoldfeldandKane(1966),Thornton(1988),Dutkowsky(1993),andDow(2001).Thisresearchalsonotedthatthatborrowingshouldbehigherwhenreserveswerescarceandwheninterestratesinprivatemarketswere,orwereexpectedtobe,higher.Webuildonthisanalysisbyexaminingwhethertheavailabilityofreservesmattersevenwhentherearemoresubstantiallevelsofreservesinthebankingsystem.

OnereasonthatDIsmayoptnottoborrowfromthediscountrateisconcernsaboutpossiblereputationalrisksassociatedwithdoingso,thisisoftenreferredtoasdiscountwindowstigma.Sincethediscountwindowistypicallyaboveprivatemoneymarketrates,marketparticipantsmaywonderwhyaninstitutionhaschosentoborrowfromthewindow.Theymayreasonthattheinstitutionwasunabletoobtainfundsintheprivatemarket,possiblybecausetheinstitutionwastroubled.Thefurtherthediscountrateissetaboveprivatemarketrates,themoremarketparticipantsmaybecuriousaboutthedecisiontoborrow.Conversely,whenthediscountwindowrateisclosetomarketrates,marketparticipantsarelesslikelytoviewborrowingasexceptional.Hencewemightexpecttoseeanincreaseinborrowingattimeswhenthediscountratemovesbelowmarketrates.(SeeCarlsonandRose(2017)andArmantier,Cipriani,andSarkar(2024)forafurtherdiscussionofstigma.4)Whileitisimportanttokeepinmindthatthesestigmaissuesprovideanimportantbackdropfordiscussionsofdiscountwindowuse,thisanalysisdoesnotprovideanydirectevidenceontheirsizeoreffect.

Section3.Analysisofbankleveldata

Weareinterestedinwhetherdiscountwindowborrowingdecisionsarerelatedtothelevelofreservesandhowtheprimarycreditinterestratescomparestootherinterestrates.Asnotedabove,thesetwovariablesareavailableatarelativelyhighfrequency.Sinceborrowingistypicalovernightandmostbanksdonotseektorollthatfundingover,lookingathigherfrequencyindicatorsoffactorsthatwouldshapeborrowingdecisionsisvaluable.

Evenso,whenconsideringborrowing,welooktoseeifabankborrowsduringaparticularweek,measuredonaThursdaytothefollowingWednesdaybasis.ThisaggregationfacilitatesconnectionstotheaggregatelevelsofreservesdiscussedinSection4.Usingdailyobservationsprovidesverysimilarresults.

4AsnotedbyKleymenova(2016),thedisclosureofdiscountwindowborrowinglikelymatters.Followingthe

passageoftheDodd-FrankAct,theFederalReservebegantodisclosethenamesofdiscountwindow

borrowerswithatwo-yearlag.TheFederalReservealsopublishesitsweeklybalancesheet,includingFederalReserveDistrictleveldata.In2020,discountwindowborrowingatthedistrictlevelwaschangedfrombeingaseparatelineitemtobeingincludedamongotheritems;systemleveldiscountwindowborrowingcontinuedtobeaseparatelimeitem.Thatinformationshiftmayhaveaffecteddiscountwindowstigma.

-6-

Toconductouranalysis,wecombineseveralpublicandprivatedatasetstoconstructafinaldatasetwithbanklevelinformationforweeksthatrangefromJanuary2016toMarch2024.5AweekrunsfromaThursdaytothefollowingWednesday.Thepanelisnotbalanced;bankscomeinandoutofthepanelbasedontheirlifecycle.Overall,thereareapproximately5,000banksinoursamplemadeupofcommercialbanks,savingsandloaninstitutions,andU.S.branchesandagenciesofforeignbanks.6

LendingdataareavailabledailyfrominternalFederalReserverecords.7Lendingdatafocusesonnon-testloansmadeviatheprimarycreditfacilityofthediscountwindow.8Foreachloan,wehaveinformationontheamountofloanoutstanding,therateatwhichitwaslent,andthetermoftheloan.Summarystatisticsregardingborrowing,aswellasallotherdata,areavailableinTable1.

Section3.1Interestratesmetrics

Constructingameasureoftherelativeattractivenessoftheprimarycreditrateisfairlystraightforward,wesimplycalculateaspreadbetweentheprimarycreditrateandotherinterestrates.BasedonresultsinpreviousliteraturehighlightingtheroleoftheFHLBs,wefocusonhowtheprimarycreditratecomparestotherateofferedbytheFHLBsandinparticular,duetotheavailabilityofahistoricaltimeseries,therateofferedbytheDesMoines.DataontheprimarycreditrateisavailabledailyandisbasedontheratesetfortheFederalReserveBankofNewYork.

Welookatthespreadfortwomaturities.MostprimarycreditloanshaveanovernightmaturitysowelookatthespreadbetweentheprimarycreditrateandtheovernightFHLBrate.TheevolutionofthespreadbetweentheprimarycreditrateandtheovernightFHLBadvancerateisshowninFigure1.Negativespreadsindicatethattheprimarycreditrateismoreattractive.Thereductionintheprimarycreditfrombeing50basispointsabovethetopofthetargetratetobeingsetatthetopofthetargetrangeisanimportantshiftintheattractivenessofprimarycredit.However,thereisstillconsiderablevariationovertime.Weconductsomesensitivitytestswithrespecttothispolicyshiftbelow.

Inaddition,weconsiderthespreadbetweentheprimarycreditrateandthethree-monthFHLBrate.FollowingMarch2020,therewasanannouncementthatDIswereabletoborrowfromthediscountwindowforperiodsaslongas90days.Henceacomparisonoftermratesalsoseemsappropriate.EventhoughtherewasashiftintheFederalReservestanceontermdiscountwindowloansinMarch2020,weincludethisspreadthroughoutassomeDIsthatneededfundsmayhavecomparedtheprospectofusingthediscountwindow,perhapsrollingcreditoverafewtimes,toborrowingforafewmonthsfromanFHLB.

5BankscoverU.S.commercialbanks,U.S.branchesandagenciesofforeignbanks,andsavingsandloaninstitutions.Creditunionsareexcludedfromtheanalysis.

6Creditunionsareexcludedfromthisanalysis,buttheyareconsideredDIsthatareeligibletouseprimarycredit.

7PrimarycreditdataaresourcedfromARCandreservebalancesarefromtheNRBLdataseriesinFDR.

8Anon-testloanisidentifiedatthetimetheprimarycreditloanismade.

-7-

WeusethepublishedFHLBrates.FHLBmembersreceiveadividendfromtheFHLBsbasedontheamountthattheyborrowandthe“dividendadjustedrate”wouldprovideamoreaccuratecomparisonofinterestrates.However,calculationofthedividendadjustmentisnotstraightforward.Moreover,wearealreadymakingsomegeneralizationsbyusingtheDesMoinesrateforallbankswheninfactratesmayvaryacrossFHLBs.Hencethisinterestratespreadshouldbeviewedasmoreindicativeratherthanastheprecisespreaddifferential.

Insomeanalysis,wedifferentiatebetweenFHLBmembersandnon-members.Dataonabank’smembershipstatuswithaFederalHomeLoanBank(FHLB)areavailablepointintimefrominternalFederalReserveRecords.

Section3.2Reservemetrics

Thesecondfactorweconsiderasamotivatorforborrowingisthelevelofreservesmaintainedbythebank.ReservebalancedataareavailabledailyfrominternalFederalReserverecords.Reservebalancesrepresentabank’send-of-daybalanceinamasteraccountataFederalReserveBank.

Banksthatfindthemselveswithinsufficientorlevelsofreservesbelowwhattheywouldlikecanobtainadditionalreservesbyborrowingatthediscountwindow.9However,itcanbedifficulttodeterminewhatlevelofreservesthatbankwouldprefertobeholding.Thatlevelcertainlydiffersacrossbanksandmightwellchangeovertime.

Togetasenseofabank’spreferencesforthelevelofreservesitmaintains,wecomputetheaveragelevelofreservesateachbankover120-daywindows(calendardays,notbusinessdays)andtakethisasthepreferredlevelofreserves.Thisaverageshouldreflectthepreferenceofthebankforreservesgivenitsbusinessmodelwithoutushavingtomakeanyassumptionsaboutthefactorsthatdeterminethosepreferences.Inaddition,usingtheserollingwindowsallowsforthosepreferencetochangeovertimedependingoneconomicconditionsaswellasrespondtochangesintheavailabilityofreserves.

Wealignthisdatasothelastdayofthis120-daywindowistheWednesdayprecedingtheweekoverwhichwewilllooktoseeifborrowingoccurs(whichasbeforeisfromThursdaytoWednesday).Insomeextensionsbelow,wealsoconsiderthevolatilityofreserves,asmeasuredbythestandarddeviationinthedailylevel,overthe120-dayperiod.Somebanksmayhavepreferencesforhavinglargereservebufferswhileothersmayprefertooperatewithsmallbuffers.Usingthe120-dayaverageasthebenchmarkagainstwhichtocomparethecurrentlevelofreservesshouldautomaticallytakeintoaccountthoseparticularpreferences.

9Forbanksthatuseacorrespondentaspartoftheirreservesmanagement,wealsotriedlookingatwhetherthelikelihoodofborrowingdependedonthatcorrespondentwasalsoshortofreserve.Howevertherewasnot

enoughborrowingamidthesebankstoaccuratelyassesswhetherthisrelationshipmattered.

-8-

TogetasenseofwhetherreservesarehighorlowontheWednesdayattheendofthe120-daywindow,wecomparethereservesonthatdaytothepreferredlevelofreserves.Thus,forbankjondayt,thebank-levelreservetopreferenceratiois:

Bank_reserve_to_preference_ratioj,t=Average,,t(t一120tot)(1)

Thereservetopreferenceratioistheindependentvariablethatweuseintheregressionsbelow.Therearesomenotableoutlierswhenconsideringtheratiosofindividualsbanks;tolimittheimpactoftheseoutliers,wewinsorizethetopandbottom1percentofthedata.

Section3.3Otheritems

Somepartsoftheanalysisincludecontrolsforbanksizeorforadequacy.InformationforboththeseitemscomefromtheFFIEC’squarterlyreportsofcondition(CallReports).Sizeismeasuredbytotalassets.ConsiderationofthecapitaladequacyofthebanksinoursampleisbasedontheFDIC’sPromptCorrectiveAction(PCA)categoriesofwellcapitalizedandadequatelycapitalized.10Sinceourfocusisonprimarycreditloans,bankswilleitherbewell-capitalizedoradequatelycapitalized.ThestandardmetricsforPCA—totalrisk-basedcapitalratio,tier1risk-basedcapitalratio,commonequitytier1capitalratio,andtheleverageratio—areusedtodeterminewhetherabankiswellcapitalizedoradequatelycapitalized.11Forcommunitybanks,thesemetricsarenotalwaysavailable.Soinstead,wedefineawell-capitalizedbankasonewithaleverageratiogreaterthanorequalto9percent.ThesemetricsarenotavailableforU.S.branchesandagenciesofforeignbanks,sotheyareexcludedfromthispartoftheanalysis.

Duringthesampleperiodtherewereafewepisodesoffinancialstress.Thefirstwasthedisruptioninfinancialmarketsassociated