JPMorgan Won't Shun the Fed's Discount Window Anymore

By David Benoit

JPMorgan Chase & Co. Chief Executive James Dimon said the bank is open to tapping the Federal Reserve's rainy-day fund, a move that's likely to lessen the stigma associated with borrowing directly from the central bank.

The nation's biggest bank will occasionally tap the Fed's discount window when it makes business sense to do so, Mr. Dimon said at JPMorgan's investor day Tuesday. Banks -- scarred from the public beating they took during the financial crisis -- have all but abandoned the window in recent years to avoid even a whiff of a government bailout.

"We think it's time," Mr. Dimon said. "We think it's a good idea and will help remove the stigma." He said the bank and its regulators have discussed how and when it might appropriately borrow from the window, and hopes other big banks follow suit.

The discount window is meant to help banks weather short-term funding crunches. To discourage banks from relying too heavily on it, the Fed charges them a higher interest rate than would typically be paid for short-term funding.

What's more, the names of borrowers must be disclosed on a two-year lag. Bankers have said they are determined to avoid that disclosure. Borrowing has plummeted as a result.

The desire to avoid the window is one reason banks are hoarding cash at levels well above what regulators require. The hoarding has drained liquidity from other parts of the market, contributing to a cash shortfall that roiled overnight-lending markets in September. The resulting spike in short-term rates forced the Fed to inject tens of billions of dollars into the market for repurchase agreements to stabilize it.

Mr. Dimon has said JPMorgan' keeps about $120 billion in reserves at the Fed and won't let that fall below $60 billion on any given day. Doing so gives the bank a big buffer over its regulatory requirements, but it also deprives the market of $60 billion in daily liquidity.

A willingness to access the discount window could allow JPMorgan to free up some of that cash while maintaining required reserve levels. Lessening the stigma of doing so, meanwhile, would give the bank cover should it ever need to access the window in a cash crunch.

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

February 25, 2020 15:38 ET (20:38 GMT)

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