Where Collateral Sleeps

Banks can use the discount window to fend off a run by prepositioning assets with the Fed and borrowing against them. Following the March 2023 bank runs, policymakers have considered mandatory prepositioning, arguably the largest update to the lenderof-last-resort toolkit in over a century. We study the forces that shape the largest banks’ prepositioning. We show that run-prone uninsured-deposit flows causally drive prepositioning and that banks face a prepositioning stigma, even absent borrowing. Prepositioning is no panacea—banks still need good assets to borrow against—but it can help at the margin.<br><br>Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at <a href="http://www.nber.org/papers/&#119;34266" TARGET="_blank">www.nber.org</a>.<br>