Should the Fed mandate collateral pre-positioning at the discount window?
Supervisor wants lenders to be ready to access central bank facilities, but formalising pre-positioning has some drawbacks
The US banking turmoil of 2023 was at heart a business model and non-existent interest rate risk management crisis. The banks that failed, such as Silicon Valley Bank (SVB) and First Republic Bank, were exposed to macroeconomically sensitive industries such as tech providers and tech venture capital, and did not deploy suitable interest rate hedges. A rapid tightening cycle from the US Federal Reserve revealed their unsustainable nature and prompted bank runs at rapid pace.
However, supervisory
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