It is widely assumed that the Federal Reserve is the lender of last resort in the United States and that the Fed's discount window is the primary mechanism through which it fulfills this role. Yet, when banks faced liquidity constraints during the 2007–2009 financial crisis (the Crisis), the discount window played a relatively small role in providing banks much needed liquidity. This is not because banks forewent government backed liquidity; rather, they sought it elsewhere. First, they increased their reliance on collateralized loans, known as advances, from the Federal Home Loan Bank system, a little known government sponsored enterprise that grew in size to over $1 trillion during the Crisis. Second, distressed banks offered exceptionally high interest rates on insured deposits, enabling them to retain and attract funds from depositors. As a result, Federal Home Loan Bank advances and insured deposits served as “alternative discount windows,” standing sources of government backed liquidity that banks relied on as market conditions deteriorated. In addition to drawing attention to the important and largely overlooked role that the alternative discount windows played during the Crisis, this Article considers the normative implications of banks' capacity to obtain government backed liquidity without going to the Federal Reserve. The analysis reveals both benefits and costs. As a result of the changing nature of banking and financial intermediation, the Fed's discount window alone cannot meet the liquidity needs of a modern financial system in distress. By facilitating the transfer of additional liquidity to the market during crisis periods, the alternative discount windows may reduce the adverse systemic consequences that arise from liquidity shortages. Yet, there are also significant costs. In contrast to the Federal Reserve, the Federal Home Loan Banks and insured depositors lack the incentives and competence needed to understand the systemic consequences of their actions. As a result, the provision of liquidity through the alternative discount windows tends to facilitate inefficient risk taking, increase moral hazard, reduce regulatory accountability, and compromise information generation, in addition to adversely affecting healthy banks. This Article accordingly concludes by proposing ways to reform the underlying programs to reduce the costs of having alternative discount windows
