The Misunderstood Lifeline: Why Banks Borrow and Why It Matters to Main Street
Sign that reads Emergency Pull
When I stepped into banking, I didn’t come from the industry. I am an “accidental banker”—someone who built a career in community leadership, not financial services. That means I often ask questions that seasoned bankers take for granted. For them, certain concepts are second nature—or default answers shaped by years of experience. But even now, in my seventh year, these questions continue to lead to fascinating realizations.
Take liquidity management, for example. The tools banks use—like the discount window—are often misunderstood. And it’s not just the general public who misinterpret them; even institutional investors sometimes view them through the wrong lens. But why? Perhaps because we, as representatives of the banking industry, haven’t done enough to create the conditions for true understanding.
A year ago, I sat in a room full of experienced bankers debating the discount window—a Federal Reserve tool designed to provide short-term liquidity. Regulators encouraged its use, yet many bankers resisted, almost as if using it was an admission of failure. As someone who didn’t come up through traditional banking—a nonnative to the industry—I had to wonder: Was there a time when this perception made sense? Maybe long ago, reliance on the discount window signaled deeper financial trouble—I don’t know. But what I do know is that this perception no longer fits today’s business climate.
Money moves faster than ever, and financial stability depends on banks having the flexibility to adapt in real time. Yet the stigma surrounding the discount window remains. And that hesitation doesn’t just affect banks—it affects businesses, communities, and the everyday people who depend on access to credit.
What Is the Discount Window?
The discount window allows banks to borrow cash from the Federal Reserve to cover short-term liquidity needs—just like a line of credit for a business or household. These loans are secured by high-quality assets (like government securities) and are meant to ensure banks have the funds to meet customer withdrawals, particularly during times of stress. In other words, it exists so that your money is there when you need it.
Why the Stigma?
Despite its purpose, banks are reluctant to use the discount window. During that meeting, I saw firsthand the deep-seated resistance among banking leaders, despite regulators actively encouraging its use. Here’s why:
Perception of Weakness – Borrowing from the discount window can be interpreted as a sign that a bank is in trouble, even if it’s simply managing cash flow. In reality, liquidity challenges are common in all businesses—why should banks be judged differently?
Public Disclosure & Reputation – The Fed discloses which banks use the discount window after two years. While meant to promote transparency, this can lead to negative interpretations that impact a bank’s reputation—particularly for publicly traded banks. But let’s be real: does the average depositor even care or track this information? Probably not.
Regulatory Contradictions – While regulators encourage banks to use the discount window, some front-line examiners still view reliance on it as poor liquidity management. This internal contradiction fuels unnecessary hesitancy.
Competitive Pressures – In a market where trust is everything, banks fear that appearing reliant on external funding—even a legitimate and prudent source—could make customers and investors uneasy.
Why Should Main Street Care?
At one point in the discussion, I asked, “Who exactly is the negative interpreter?” Do everyday depositors track where a bank borrows money from? Do they even care? Probably not. But in the banking world, perception drives decision-making. And that perception—whether fair or not—can affect whether capital keeps flowing or dries up when it’s needed most.
The collapse of banks like Silicon Valley Bank and Signature Bank showed how fast a liquidity crisis can unfold in the digital age. When banks hesitate to use the discount window due to outdated stigma, they may take riskier actions—like selling off assets at a loss or restricting lending—to avoid the “optics” of borrowing. And that directly impacts Main Street.
Think about this: If every small business owner or family was judged harshly for using a line of credit to manage cash flow, the economy would be in chaos. The same logic should apply to banks. Liquidity tools exist for a reason—but outdated stigma forces banks to avoid them, sometimes at the cost of serving the very communities that rely on them.
When banks hesitate to shore up liquidity, they may pull back on lending, making it harder for small businesses to get loans and grow. They may raise borrowing costs for customers to maintain liquidity. They may restrict community investment, leading to fewer dollars circulating locally—affecting everything from home loans to job creation.
A Call to Reframe
The financial system is built on trust and resilience. Using the discount window shouldn’t be seen as a sign of distress—it should be viewed as responsible liquidity management. After all, businesses and households use lines of credit all the time. Shouldn’t banks be able to do the same without stigma?
At the end of the day, if the tools designed to stabilize the financial system are stigmatized, we have to ask: Are we prioritizing public perception over actual economic resilience? And if so, who really pays the price?
This isn’t just a conversation for bankers and regulators—it’s a conversation for all of us. Because when a crisis hits, the lack of understanding leaves businesses, communities, and policymakers scrambling. The time to build financial education is not in the middle of a crisis—it’s now.
That’s why I’m calling on business journals, local newspapers, and community publications to take on the task of financial education before the next emergency. The public deserves to understand how banking really works, beyond headlines of failure. When we normalize discussions about banking fundamentals—how liquidity works, why banks borrow, and how financial tools keep economies moving—we strengthen the foundation of our communities.
We don’t wait for hurricanes to teach people about storm preparedness. We shouldn’t wait for a banking crisis to educate people about financial stability. Now is the time to start.
What do you think? Does the perception of banking tools like the discount window need to change? Should financial education be prioritized before the next crisis?
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About Me:
Hi, I’m Orvin Kimbrough—volunteer, board director, and chairman & CEO of Midwest BankCentre. I help professionals scale confidence, leadership, and influence by driving mindset shifts, expanding networks, sharing knowledge, and encouraging bold action.
I share insights on leadership, resilience, and personal growth—rooted in my journey from foster care to CEO. 📖 Twice Over a Man, my recently released book, has been described as inspiring, honest, and transformative. Readers call it a leadership manual wrapped in a powerful, relatable memoir of perseverance and faith.
For more Reflections (and broader lessons learned), visit orvinkimbrough.com