Federal Reserve Vice Chair Philip N. Jefferson said on September 22, 2026, that the central bank's multiyear modernization of its discount window — the lending program through which banks obtain liquidity directly from the Federal Reserve — has made the facility faster, more accessible, and less operationally burdensome, with direct implications for the functioning and resilience of the U.S. Treasury market.

Speaking at the 2026 U.S. Treasury Market Conference at the Federal Reserve Bank of New York (event; full speech; PDF), Jefferson — who serves as the Board's Oversight Governor for the Division of Monetary Affairs and in that capacity oversees its discount window policy work — described a Systemwide undertaking that he said remains a work in progress.

"I cannot overemphasize that modernizing discount window operations is a true Systemwide effort and that teamwork is key," he said. "While notable strides have been made, there is still important work to do. I look forward to seeing continued improvements in discount window operations in the coming years."

His remarks covered two main areas: the progress made in recent years to further modernize the discount window, and the role of Treasury securities as collateral for discount window loans.

A 113-Year-Old Liquidity Backstop

The discount window, which provides liquidity to banks, is as old as the Federal Reserve itself — an institution that turns 113 in December. Over its long history, Jefferson noted, the Fed has used the window both to support the liquidity and stability of the banking system and to implement monetary policy. Banks access the window overwhelmingly through primary credit borrowing, which is offered on a "no questions asked" basis.

For the window to keep performing those roles, he argued, it must evolve with the banking and financial system. That is why staff at the Board of Governors and at each Federal Reserve Bank have worked diligently over the past several years to enhance operations — continuing efforts meant to ensure a more efficient, accessible source of liquidity that banks can access "quickly and without hesitation when needed."

Jefferson offered a parallel historical frame for the Treasury market, remarking that it is arguably as old as the country itself: the origins of federal debt date back to the Revolutionary War, while the beginnings of the modern market are more directly traced to World War I. Over the past century, the Treasury market has evolved into one of the deepest and most liquid markets in the world.

Within the Federal Reserve System, responsibilities are divided. The Reserve Banks operate the discount window in their Districts, while the Board provides oversight and establishes policy through regulations and guidance; because policy and operations are closely intertwined, the Board coordinates extensively with Reserve Bank leadership and staff on discount window matters.

Three Dimensions of Modernization

Jefferson organized the System's modernization work — aimed at meeting "21st-century banking needs" — along three dimensions: business process improvements, automation enhancements, and coordination with the Federal Home Loan Banks (FHLBs).

The groundwork included extensive outreach to banks and other stakeholders to better understand their experiences with the window. Among those efforts was the Board's 2024 request for information (RFI) on discount window operations, which complemented ongoing public conversations across the System, such as Ask the Fed® sessions and Reserve Bank outreach events. Jefferson said progress has been made in addressing the feedback received through these channels, with improvements now being implemented "so banks can benefit as quickly as possible."

Business process improvements. On the first dimension, Reserve Banks have focused on giving banks more efficient access to the window. In terms of standardization, all Districts work within the same collateral framework, use common loan valuation models and processing technology, and accept electronic signatures. Earlier this month, the Reserve Banks took what Jefferson called an important step to further simplify and streamline how banks pledge loans as collateral: eligible institutions can now pledge several different loan types to maximize liquidity while maintaining possession of the collateral. The changes — announced by the Fed on September 8 as a streamlining of its Borrower-in-Custody program — include simplified forms, faster enrollment, automated pledged loan lists, and centralized resources so institutions can easily find the information they need. According to Jefferson, the process improvements enhance consistency in collateral administration across the 12 Reserve Banks while maintaining robust risk-management practices.

Automation. In 2024, the System launched Discount Window Direct (DWD), a self-service online portal that allows banks to request loans, make payments, view loan and collateral information, and submit loan collateral files electronically. Since the portal's launch, users have reported that it is now faster, easier, and more efficient to borrow from the window. Today, over 60 percent of discount window loan requests are submitted through DWD. The portal also includes a messaging feature that allows banks to directly message their local Reserve Bank in lieu of a phone call. Faster, more efficient access, Jefferson said, gives banks greater certainty as they manage fast-moving liquidity needs, and as adoption grows and new features are added, the technology will continue improving the discount window experience.

FHLB coordination. Jefferson described the FHLBs as important liquidity providers to banking organizations and said the Federal Reserve and FHLB Systems share the goal of supporting the stability and resilience of the U.S. banking system. Given the increased speed with which liquidity can now move, a key focus has been reducing the time it takes to re-allocate collateral by enhancing interoperability between Reserve Banks and FHLBs.

Efforts to date have focused on improving preparedness through measures that support coordination and collaboration — reinforcing relationships, establishing back-end operational arrangements and documentation, and developing processes that enable the Reserve Banks and FHLBs to work together more effectively. Jefferson said he and his FHLB partners believe the ongoing efforts and continued commitment have put the two Systems "in a much better position than three years ago" by meaningfully improving processes and strengthening relationships and engagement.

On a personal note, Jefferson said he has had the opportunity to engage with the FHLB presidents and other leaders in the FHLB System, and that he greatly appreciates their ongoing collaboration and support on interoperability. The engagement, he added, "is not just about crisis preparedness — it is also about building lasting, more effective institutional partnerships."

The Vice Chair stressed that enhancements to the window are a continuous process. In over a century, the discount window has evolved from a physical teller window at a Reserve Bank that a bank representative had to visit to an online portal that permits a bank to request a loan "with a few clicks." In an era of rapid economic and technological transformation, he said, it is crucial that the window continue to evolve and respond to an ever-changing environment.

The modernization efforts make discount window borrowing faster and less operationally burdensome. These improvements, in Jefferson's view, "help reduce the frictions that may make banks hesitant to use the window when they are healthy and reinforce overall confidence in the banking system." He added: "Our work is not done, but I remain committed to working with my colleagues throughout the Federal Reserve System to do just that."

Treasury Securities as Collateral

The second half of the speech turned to what Jefferson called an increasingly important dimension of discount window operations: the role of Treasury securities as collateral. A well-functioning Treasury market, he said, is essential to the stability and efficiency of the financial system and the economy more broadly, because it "serves as the foundation for pricing risk across all asset classes, facilitating the efficient allocation of capital throughout our economy."

In that context, the discount window supports Treasury market resilience in important ways. By providing banks with a reliable source of liquidity, it "serves as a shock absorber during periods of market stress by reducing the risk of forced sales of Treasury securities." The window's stabilizing influence also extends to broader money markets: by alleviating funding pressures at depository institutions, it helps ensure the smooth functioning of key short-term funding markets — including the repurchase agreement (repo) market and the federal funds market — which in turn supports Treasury market liquidity.

The mechanics are central to that support. Institutions holding Treasury securities in their Fedwire Securities accounts can quickly transfer them to their discount window pledge account even late in the day. For institutions that have arrangements in place, pledging Treasury collateral and receiving a same-day loan are "straightforward and efficient" — speed and ease of access that matter for market functioning, particularly when banks active in the Treasury market need liquidity quickly.

Jefferson pointed to the COVID-19 crisis as a clear demonstration. In March 2020, when the Treasury market experienced severe dysfunction, the Fed saw a sharp increase in Treasury securities pledged to secure potential discount window loans. The Federal Reserve's ability to accept Treasury securities quickly and to provide banks with the option of obtaining reserves if they were needed "proved critical," he said.

The window also helps respond to sudden tightening in money markets, supporting the Federal Reserve's monetary policy implementation and complementing the standing repo operations in relieving funding market pressures. When pressures emerge, banks can turn to the discount window rather than borrowing at rates above the Federal Reserve's target range. Jefferson noted that the Fed has recently seen more use of the window amid periods associated with temporary upward pressure on money market rates, "such as those observed at quarter-ends."

The interaction between the Treasury market and the discount window, he argued, underscores why maintaining a robust and effective discount window framework is "not merely about banks, but critically important for financial stability more broadly."

A Core Function, Still Evolving

Jefferson closed by reiterating that the Federal Reserve's ability to lend to banks through the discount window dates to the System's founding and is one of its core functions. The liquidity provision serves a variety of purposes: it facilitates banks' ability to lend to households and businesses and supports other financial market participants during stress or volatile market conditions. It is particularly important for Treasury markets, he said, that banks can serve as "a source of strength for market functioning" — stability made possible in part by the window's acceptance of Treasury securities as collateral with same-day value.

Today, he said, the discount window "remains ready to lend smoothly and effectively to banks when needed," and the modernization efforts will ensure it supports individual banking institutions and broader market resilience well into the future. Even so, complacency is unwarranted: the window's continued success ultimately lies with the ongoing partnership and dedication of stakeholders within the Federal Reserve System and beyond it, "including many of you here today," he told the conference audience. "Working together, we will continue to fulfill the fundamental purpose of the discount window as established over a century ago — and thereby achieve the best outcomes for the American people."

Notes

• The views expressed in the speech are Jefferson's own and are not necessarily those of his colleagues on the Board of Governors of the Federal Reserve System or the Federal Open Market Committee.
• Jefferson previously discussed the program's history in "A History of the Fed's Discount Window: 1913–2000," a speech delivered at Davidson College, Davidson, N.C., on October 8, 2024 (text).
• The discount window's statutory basis is the Federal Reserve Act, Pub. L. No. 63-43, 38 Stat. 251 (December 23, 1913).
• On the Revolutionary War-era origins of federal debt, Jefferson cited Richard Sylla and David J. Cowen (2018), Alexander Hamilton on Finance, Credit, and Debt (New York: Columbia University Press).
• On the modern Treasury market's World War I-era beginnings, he cited Kenneth D. Garbade (2012), Birth of a Market: The U.S. Treasury Securities Market from the Great War to the Great Depression (Cambridge: MIT Press).
• The Fed's modernization program is documented on the Discount Window Modernization page.
• The September 8 changes to loan pledging are described in The Federal Reserve Implements Improvements and Streamlines the Borrower-in-Custody Program.
• For the window's role in recent stress episodes, see Jefferson's October 9, 2024, speech "The Fed's Discount Window: 1990 to the Present," delivered at the Charlotte Economics Club, Charlotte, N.C. (text).