Don't they have to put up collateral when they do that? And didn't the Fed just recently lower the standards for collateral to include commercial paper?
Yes and yes.
But for some reason, bankers continue to think that a) they have it “under control” (they don’t), b) that going to the discount window carries a stigma, that bank shareholders will panic and sell the shares down, and c) that other banks and creditors will refuse to lend to the bank because going to the discount window is a sign that they’re in a cash crunch (which they are).
Instead, bankers have adopted a position that they’ll get through somehow, that it can’t get worse.
It can. It is. It will.