Dallas Federal Reserve Bank President Lorie Logan proposed allocating a portion of the Fed's balance sheet to loans and repos, potentially through a daily auction of discount-window loans. This strategy aims to facilitate bank access to liquidity from the Fed, enhancing policy implementation efficiency and effectiveness.
Logan suggested that such a facility could promote the redistribution of reserves within the banking system, as it could automatically allocate liquidity to institutions most in need on a given day. The Fed's discount window currently provides liquidity to banks in need, albeit with the traditional stigma of being a last-resort option.
Logan stressed the importance of normalizing the use of the discount window by encouraging banks to view borrowing as a routine practice. She highlighted the potential benefits of implementing a fixed quantity auction of discount window loans daily to boost banks' operational readiness and emphasize that borrowing is a common practice among financially sound firms.
Despite outlining these proposals, Logan clarified that the Fed is not currently considering changes to its implementation framework. She emphasized that any potential adjustments would require extensive discussion, analysis, and learning from the experiences of other central banks.
Logan refrained from discussing monetary policy or economic outlook in her prepared remarks, focusing instead on the Fed's balance sheet and the mix of securities holdings. She suggested that aligning the maturity profile of the Fed's securities holdings with that of U.S. Treasury debt issuance would optimize the balance sheet. Looking ahead, she recommended increasing purchases of shorter-term securities to achieve a more neutral allocation as the Fed's balance sheet expands in the future.