CAPITAL REQUIREMENTS AND RATIONAL DISCOUNT-WINDOW BORROWING

When banks face capital regulations and stochastic deposit supply, the ir decisions to borrow at the discount window will be affected by a br oader range of variables than previous theoretical and empirical studi es have recognized. Moreover, those decisions can respond discontinuou sly to changes in market parameters and to the form of rationing rule by which the discount window is administered. Risk aversion can compli cate these linkages considerably, even causing some banks to prefer a positive discount rate that may exceed the actual level.