Fed’s Jefferson Says Discount-Window Upgrades Can Support Treasury-Market Liquidity

Federal Reserve Vice Chair Philip N. Jefferson said Tuesday that modernizing the discount window is making the central bank’s liquidity backstop easier for eligible banks to use and can also support U.S. Treasury-market functioning. His central point was that a bank facing a late-day or stress-related funding need may be able to borrow against high-quality collateral instead of selling securities into an already strained market.

Jefferson delivered the remarks at the 2026 U.S. Treasury Market Conference at the Federal Reserve Bank of New York, an annual gathering jointly organized by federal agencies that oversee or monitor the Treasury market. He did not use the speech to discuss the near-term economic outlook or the path of monetary policy.

A major focus was Discount Window Direct, the Fed’s self-service online portal for institutions that have established borrowing access. Jefferson said the portal now processes about 60% of discount-window loans. That marks a shift from a system that historically relied much more heavily on phone calls and manual interaction with a local Reserve Bank.

Online access has become a larger part of discount-window lending

Launched in 2024, Discount Window Direct has steadily taken on more of the work banks previously handled through other channels. According to the Federal Reserve Banks’ discount-window modernization page, institutions can use the system to request loans, make payments, pledge certain collateral, view loan and collateral balances, and communicate securely with their Reserve Bank.

Those changes address a practical issue that can matter during a funding squeeze: access to a liquidity facility is less useful if an institution has not completed the legal, collateral and operational work needed to draw on it quickly. The Fed has spent the past several years pushing banks to improve readiness, while also simplifying parts of its own process.

Jefferson’s emphasis on the portal reflects that operational focus. A self-service system can reduce the time and coordination needed to request funds, especially late in the day, although access still depends on eligibility, pledged collateral and Reserve Bank approval. Discount-window loans remain collateralized, and the modernization effort does not remove the credit-risk controls that govern Federal Reserve lending.

Collateral processes are changing as well. On September 8, the Federal Reserve implemented updates to its Borrower-in-Custody program, which allows eligible institutions to pledge qualifying loans while retaining possession of the underlying loan documents. The changes were designed to speed enrollment, reduce duplicative reviews and reporting, and make collateral processing more consistent across Reserve Banks.

Jefferson tied bank liquidity to Treasury-market resilience

Treasury-market resilience enters the picture through the role government securities play on bank balance sheets. Treasuries are widely held as liquid assets, but a bank that suddenly needs cash can face a choice between raising funds against those securities or selling them. In calm markets that distinction may be small. During stress, simultaneous asset sales by multiple firms can add pressure to prices and market liquidity.

Jefferson argued that reliable discount-window access can give banks another route. Treasury securities can be pledged as collateral at the window, allowing an eligible institution to obtain cash without first selling the securities. The Federal Reserve’s current discount-window guidance says loan proceeds are normally credited on the day an advance is approved, and Reserve Banks may approve earlier availability when appropriate.

That mechanism does not make the discount window a Treasury-market facility. It is a lending facility for eligible depository institutions. The market-functioning benefit is indirect: if a bank can meet a funding need through secured central-bank borrowing, it may have less reason to liquidate Treasury holdings at an unfavorable moment. Jefferson’s remarks framed that option as part of the financial system’s ability to absorb shocks rather than amplify them.

That distinction is important because the Treasury market is central to federal financing, private-sector pricing and the implementation of monetary policy. Episodes of market stress have shown that even a market with enormous trading volume can experience sharp deterioration in liquidity when demand for cash surges and intermediation capacity becomes constrained. Improving the reliability of bank liquidity tools is one piece of a broader effort by U.S. authorities to strengthen Treasury-market resilience.

Modernization is continuing beyond the online portal

Modernization extends beyond software. Its recent changes have included standardizing collateral practices, simplifying onboarding and gathering feedback from banks about how discount-window operations should evolve alongside changes to the payments system.

One open issue is operating-day coverage. The Federal Reserve has announced plans for the Fedwire Funds Service and National Settlement Service to expand to Sundays and weekday holidays no earlier than 2028. A January 2026 Federal Reserve survey found that, among respondents who felt they had enough information to take a view, a majority considered some level of discount-window availability on those additional days important. Many respondents that wanted expanded access emphasized afternoon or end-of-day hours.

That work highlights the same principle behind Jefferson’s Treasury-market remarks: liquidity tools have to be operational when institutions actually need them. Faster access does not guarantee that a bank will borrow, and longstanding concerns about the perceived stigma of using the window can still affect behavior. The Fed has nevertheless continued to encourage institutions to establish access, pledge collateral and test their ability to draw before a period of stress.

For Treasury markets, the practical test will come during periods when funding conditions tighten and banks must decide whether to borrow, sell assets or find cash elsewhere. The Federal Reserve is continuing to add functionality to Discount Window Direct and has begun implementing the new Borrower-in-Custody standards, while the planned expansion of Fedwire operating days provides the next concrete operational milestone for the liquidity framework.