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Discount Window Lending : Policy Trade-offs and the 1985 BoNY Computer Failure, No. 15-05

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Discount Window Lending : Policy Trade-offs and the 1985 BoNY Computer Failure, No. 15-05

DATE: May 2015

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ABSTRACT: On November 21, 1985, the Bank of New York (BoNY) suffered a software failure that left it unable to redeliver securities it had received from other institutions as an intermediary. The result of the failure was that the bank sought and received $22.6 billion in discount window lending from the New York Fed, a record-setting amount. The episode presents a case study for considering when discount window lending and similar interventions are justified as a matter of efficiency, as well as the need for policymakers to take account of possible moral hazard that may lead to inadequate safeguards against failures—whether operational breakdowns or deficient financial strategies.

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Ennis, Huberto M. , Price, David A. and Federal Reserve Bank of Richmond. "Discount Window Lending : Policy Trade-offs and the 1985 BoNY Computer Failure, No. 15-05," Economic Brief (May 2015). https://fraser.stlouisfed.org/title/6034/item/583936, accessed on June 3, 2023.

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