Moreover, those decisions can respond discontinuously to changes in market parameters and to the form of rationing rule by which the discount window is administered. Risk aversion can complicate these linkages considerably, even causing some banks to prefer a positive discount rate that may exceed the actual level.
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Capital Requirements and Rational Discount Window Borrowing
February 1996
WP 96-04 – When banks face capital regulations and stochastic deposit supply, their decisions to borrow at the discount window will be affected by a broader range of variables than previous theoretical and empirical studies have recognized.
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