The Commercial Paper Funding Facility
On March 17, the Federal Reserve Board announced the establishment of a Commercial Paper Funding Facility (CPFF), a critical lifeline for Main Street businesses, which provides much-needed capital to meet everyday expenses.
- Commercial paper is a short term unsecured debt issued by a corporation or municipality used to finance everyday operating expenses such as payroll, inventory, and other short-term needs.
- The CPFF purchases highly rated, three-month unsecured and asset-backed paper from an eligible bank, corporation, special-purpose entity or municipal issuer allowing businesses and local governments access
to funding they need in times when credit is strained.
The Money Market Mutual Fund Liquidity Facility
The Federal Reserve established the Money Market Mutual Fund Liquidity Facility (MMLF) on March 18, 2020. At its core, this facility acts as a backstop for holdings of certain money market funds, helps stabilize the entire financial system, and supports the flow of credit to American households and businesses.
- Money market funds are investment vehicles that invest in debt securities with short maturities and minimal credit risk. These funds provide safe and effective tools for American investors of all kinds, including individuals, small businesses, pension funds, and municipalities.
- The MMLF will make loans available to eligible financial institutions to facilitate the purchase of high-quality assets from an eligible money market mutual fund to support the flow of credit to American households and businesses.
The Primary Dealer Credit Facility
The Federal Reserve Board, under their authority granted by section 13(3) of the Federal Reserve Act, established the Primary Dealer Credit Facility (PDCF). The PDCF provides credit to primary dealers in exchange for a broad range of collateral for term funding with maturities of up to 90 days with the goal of providing liquidity to a wide range of market participants and to support a broad range of asset classes.
- Primary dealers serve as the trading counterparties for the Federal Reserve’s open market operations and play a key role in supporting the implementation of U.S. monetary policy and providing liquidity in the market for U.S. Treasury securities.
- PDCF is a loan facility that will provide credit to primary dealers in exchange for a broad range of collateral for term funding with maturities up to 90 days.