Federal Reserve officials ponder ways to shrink their holdings and keep markets flush with cash from lending operations, they face a challenge years in the making: Overcoming the stigma of borrowing from the central bank.

For more than a decade, the Fed has supplied reserves primarily by holding a massive securities portfolio. Shifting to lending facilities and a so-called repo-based system will reshape the relationship between the Fed, banks and money markets.

Discussions on the use of repo operations have ramped up following speeches by New York Fed President John Williams and Roberto Perli, manager of the System Open Market Account. Chairman Kevin Warsh also said this week a task force reviewing balance-sheet management will likely present findings early next year.

A main argument in favor of a repo-based system is that it would allow the Fed to operate with a leaner balance sheet and a smaller stock of reserves — objectives of Warsh since before he led the Fed. But it would also require market participants, including regulators, to be comfortable borrowing from the central bank.

“Clearly there’s a push to explore this in the context of the task force,” said Mark Cabana, co-head of global interest rate strategy at Bank of America Corp. “Fed officials are talking about these options like they’re viable. They’re not unless they address underlying issues.”Before the 2008 global financial crisis, the Fed generally supplied a limited amount of reserves and relied on banks to redistribute liquidity among themselves through money markets. Institutions that needed additional cash could also rely on the discount window, though many firms were reluctant to do so.

The Fed’s balance sheet has ballooned since then as asset purchases flooded the financial system with bank reserves, boosting liquidity and keeping rates low. While policymakers initially planned to drain those balances, they’ve ultimately stuck with an ample-reserves framework supported by a large balance sheet, which now stands at about $6.8 trillion.

Unlike this securities-based approach, with its large portfolio of Treasuries, a repo-based framework supplies a larger share of reserves through lending facilities and repo operations.

The Bank of England, Bank of Canada and Reserve Bank of Australia use this approach. Strategists at Bank of America say those frameworks are possible in part because borrowing from central-bank facilities has become a routine part of liquidity management rather than a signal of distress.

“I have thought that a system like the Bank of England’s or the ECBs is attractive in that ... it can help reduce reserve demand if you’re confident that you’ll be able to obtain repo liquidity free of stigma and readily from the central bank,” said Matthew Raskin, head of US interest rate strategy at Deutsche Bank.

The catch is that those systems depend on institutions viewing central-bank liquidity facilities as ordinary funding tools rather than emergency backstops. Transforming the long-held belief that any borrowing suggests an institution is on the precipice of failure has been difficult.

Policymakers have made repeated calls to utilize the discount window, a key Fed lending facility that carries a stigma as old as the US central bank itself. Officials, including Governor Philip Jefferson last month, have made efforts to modernize the window, making access more efficient for banks to pledge loans as collateral, give institutions faster access, and working with the Federal Home Loan Banks to increase the speed collateral can be reallocated.

But during a private discussion with the New York Fed’s Williams last year, primary dealers representing Wall Street banks told officials that borrowing directly from the central bank — including the then-named Standing Repo Facility that lets institutions borrow cash overnight — carries a stigma.

“Facilities do have stigma and the only way to combat that is to make them necessary,” said Chris Hughes, a fellow at the Brookings Institution and economist who co-founded Facebook in 2004.

Despite the increased rhetoric about alternatives to the Fed’s existing framework, few observers expect Fed officials to rush toward a new framework.

The current ample-reserves regime continues to ensure money market rates remain stable, while any transition toward a more repo-based system would require changes to bank behavior and markets, with potential for volatility from increased use of overnight funding markets. In addition, a securities-based approach inadvertently guarantees there’s a mechanism to absorb Treasury’s growing pile of bill supply.

“There’s a whole manifold of ways to conduct monetary policy efficiently and effectively,” said Seth Carpenter, global chief economist at Morgan Stanley and former Fed staffer. The risk is that “you can do it wrong,” he said.