Thoughts on the discount rate

So following the announcement that the Federal Reserve's discount window lending rate was increasing on Friday, there was a lot of speculation as to what it meant for the overall policy for the Fed going forward, whether it meant they would be raising the target Fed Funds rate, whether it meant the end was nigh, etc etc.  Just as a general disclaimer, my job has NOTHING to do with this stuff, so I only have the same information as everyone else to make opinions out of.  Actually, considering I only had 1 year of econ, I probably have less, and this will probably sound overly simple of me.  I personally have no issue with raising the discount rate, and even think that it's a good idea.  Looking at the traditional relationship between the discount rate and the Fed Funds rate, logic seems to suggest that raising the discount rate and not the target for the FF rate would encourage banks to lend to each other before turning to the discount window.  Back when I was in microeconomics (fall 2006), borrowing from the discount window carried a stigma, and I think returning to something closer to that would help push interbank lending markets back closer to normal.

Having said that, I think the larger problem does not lie within interbank markets, but in consumer and business lending.  Considering that there is a bunch of uncertainty about the regulatory future, I think banks are riding things out and regrouping now instead of looking at ways to expand and grow their assets.  If we want banks to feel comfortable lending again, the government needs to get its act together and decide what regulatory reforms it's going to push.  I'm personally against anything that makes the Fed less independent, but there might be a slight bias in there...in any case, once the regulatory environment is less of a wild card, I think banks will be more confident about their overall operations, and therefore their lending as well.