The existence of the discount window makes private bank loans work more smoothly,even if the discount window isn't being used.

Question

Quizplus · Accepted Answer

The existence of the discount window acts as a backup source of liquidity for banks, allowing them to borrow from the central bank if they face temporary shortages of funds. This knowledge helps to reduce the risk associated with lending to banks, making it easier for private banks to obtain loans from other sources, even if they never use the discount window themselves. Therefore, the existence of the discount window can be beneficial for the smooth functioning of private bank loans, even when it is not actively being used.

The Existence of the Discount Window Makes Private Bank Loans