Vice Chairman Geithner, I spoke with Ken Lewis, President and CEO of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility.
In a crafty move, the Fed cut the excess charge by half in mid-August and stage-managed borrowing by some obviously solvent banks to lessen the stigma of using the discount facility.
Mr. Lacker asked the group if he could follow up, and said: "I spoke with Ken Lewis, president and C.E.O. of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility.
Shah and Cardenas-Barron (2015) have described an inventory model with cash discount facility, and derived the solution which helps retailer and supplier to take better decisions.
When fears of spreading defaults in the subprime mortgage market first began to scare lenders away from not just mortgages but a much broader range of credits too, the central bank's initial response was to reduce the discount rate and, further, to encourage banks to borrow via the discount facility, and even to do so for substantially longer than the usual overnight term.
Exclusive products, discounts, facilities and a myriad of worthwhile incentives make a compelling case for having one of these.
Since October 2008, the Bank has provided a permanent Discount Window Facility to banks, with a normal length of borrowing of 30 days.
And it allows desperate banks to swap illiquid collateral for gilts for up to a year using its Discount Window Facility — in return for a fat fee and big haircuts.
Upon its closure in order to ensure the availability of long-term liquidity provided by the SLS is continued, the Bank will extend its Discount Window Facility, with its maturity increasing from 30 days to one year for an incremental fee of 25 basis points.
The system, which is run by Limburg.net, an inter-municipal waste disposal company, sees local residents gain discounts at municipal facilities in exchange for reducing their waste and other environmental actions.
