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41 Yale J. on Reg. 1 (2024)

handle is hein.journals/yjor41 and id is 1 raw text is: Credit Markets and the Visible Hand: The Discount Window and the Macroeconomy Peter Conti-Brown? & David Skeeltt In times of crisis such as the 2008 financial crisis and the 2020 COVID-19 pandemic central banks throughout the world engage in interventions with lasting effects on financial markets and the macroeconomy, for better and worse. The negative political consequences of these interventions-fears of politicizing central banking and inflationary concerns about dramatic interventions among them-can dampen the enthusiasm for such interventions early in the face of crisis. This dynamic creates a dilemma for the US central bank, the Federal Reserve, causing it to eschew interventions beyond monetary policy until the crisis has already crashed, at which point the Fed moves into every aspect of policy throughout the economy. This Article highlights the inadequacy of this dynamic. Sole reliance on monetary policy is insufficient in the face of growing crisis, while the Fed's vast emergency lending facilities face ever stiffer political, inflationary, and equity concerns. The Article advocates instead for a new approach to macroeconomic stability, not just through monetary policy or emergency interventions, but through judicious use of the sleeping giant of Fed policy, the bank-intermediated discount window. Focusing on the problematic credit market for debtors-in-possession in the midst of bankruptcy, the Article suggests a reformed system that safeguards the Fed, supports small and medium-sized enterprises, and stabilizes the macroeconomy without exposing the system to the pockets of instability that the Fed's overreliance on dramatic intervention can do. t Class of 1965 Associate Professor of Financial Regulation, The Wharton School of the University of Pennsylvania; Nonresident Fellow in Economics Studies, Brookings Institution. t S. Samuel Arsht Professor of Corporate Law, University of Pennsylvania. We are grateful for feedback at various stages from Vince Buccola, Don Kohn, Kate Judge, Adam Levitin, Lev Menand, Melody Wang, David Wessel, and the participants in the Wharton- Hastings Corporate Restructuring & Insolvency Seminar, the BYU Winter Deals Conference, and the Goethe University Finance Department works, and to Si Sun and Anne Wheat for extraordinary research assistance. 1

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