In a twist on a phrase, “borrowing” it could be said is in the eyes of the beholder. At least that’s the word coming from U.S. Bancorp (USB).
The Federal Reserve has released information regarding which of the nation’s banks borrowed from the Federal Reserve’s discount window.
Fearing the negative public perception, and perhaps a run on the banks involved in addition to general market unrest, the Fed had been reluctant to reveal which banks were involved.
Case in point, U.S. Bancorp. In acknowledging the bank’s borrowing from the discount window, Treasurer Kenneth D. Nelson said the window shouldn’t be seen as a “last resort” because for years the central bank encouraged lenders to use it to square positions at day’s end.
“We used the window a small number of times during what everyone is referring to as the financial crisis, and not as a vehicle of last resort, but as another funding option at the end of the day,” Nelson said in a phone interview yesterday. “We have been encouraged by the Fed to use the discount window.”
According to Nelson, the Fed started encouraging the window’s use more than a decade ago and continued to do so during the crisis.
The Federal Reserve’s records show that U.S. Bancorp, the sixth-largest U.S. bank by deposits, borrowed $1.55 billion overnight on Sept. 12, 2007.
“Twenty or 30 years ago there might have been some sort of a reluctance to use it but certainly not in recent history,” said Nelson, who’s been the treasurer at the Minneapolis-based bank since March 2008. “At least 10 years ago they encouraged us and said there is no stigma.”
The main function of the discount window is to be a “backup source of short-term funds for generally sound depositary institutions,” according to the Fed’s website.
Nelson said U.S. Bancorp sells excess funds “every single day of the year” to banks that may be unable to access the capital markets or other sources of liquidity. If those banks fail to transfer the necessary funds by the end of the day, the lender turns to the Fed, he said.
“We could be expecting a wire in from some large bank and that bank fails on that trade,” Nelson said. “If that happened, then we would need to go out and cover our position at the discount window.”
A U.S. Bancorp spokeswoman said the company found the window to be the most economic alternative at times, “as market volatility unfavorably impacted the rates on other available options.” She said, “throughout the cycle, U.S. Bank’s liquidity position remained strong and, in fact, has continued to grow.”
