The discount window stigma

Vice Chair Quarles' Stigma Problem

Borrowing from the discount window comes with a tax cost. Treasury collects the gain and reduces its own interest charges as a result. 

Seignoriage is the government tax paid when regulated banks let excess reserves drop. The regulated banks will always keep the seigniorage tax as an adjustable variable. Under the current system they can set the tax by adjusting excess reserves. To borrow from the Fed is equivalent to borrowing from the taxing agent and raising seigniorage taxes for all banks.

Consider a bank needs to borrow from the Fed. On doing so, excess reserves drop, and the other banks restore excess reserves to set the tax lower. On net, the borrowing bank is really borrowing from other banks and Treasury just takes a cut of the action, a loser proposition.