NEW YORK/WASHINGTON, March 17 (Reuters) – The Federal Reserve is planning to reinstate a facility previously used during the 2007-09 financial crisis to improve liquidity in a key short-term funding market, two sources familiar with the matter told Reuters. An announcement about a reintroduction of the Commercial Paper Funding Facility (CPFF) was announced today. Nick Note this is a big deal This is not helicopter money. This is a fleet of C31 cargo planes dumping money See explanation in detail below
Commercial Paper Funding Facility (CPFF)
Background
Commercial paper is a critical source of funding for many businesses. In the fall of 2008, the commercial paper market was under considerable strain as money market mutual funds and other investors–themselves often facing liquidity pressures–became increasingly reluctant to purchase commercial paper. As a result, the volume of outstanding commercial paper fell, interest rates on longer-term commercial paper increased significantly, and an increasingly high percentage of outstanding commercial paper needed to be refinanced each day. This restriction in the availability of credit made it more difficult for businesses to obtain credit during a critical period of economic stress.
To address these strains, the Federal Reserve established the Commercial Paper Funding Facility (CPFF) to provide liquidity to U.S. issuers of commercial paper in the event that credit was not available in the market. By providing liquidity to the commercial paper market, the CPFF encouraged investors to resume lending in the market.
Under the program, the Federal Reserve Bank of New York (FRBNY) provided three-month loans to the CPFF LLC, a specially created limited liability company (LLC) that used the funds to purchase commercial paper directly from eligible issuers. The commercial paper that was eligible for purchase was highly rated, U.S. dollar-denominated, unsecured and asset-backed commercial paper with a three-month maturity. To manage its risk, the Federal Reserve required issuers whose commercial paper was purchased by the CPFF LLC to pay fees at the time of each purchase. Additionally, at the time of the initial registration, each issuer was required to pay a facility fee equal to 10 basis points of the maximum amount of commercial paper that it could issue to the CPFF LLC. A total of $849 million in fees were collected by the CPFF LLC. The FRBNY’s loan to the CPFF LLC was secured by all of the LLC’s assets, including its commercial paper holdings, accumulated fees, and proceeds from investments.
The CPFF was created by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, which permitted the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations. The facility was administered by the FRBNY.
The facility was announced on October 7, 2008, began purchases of commercial paper on October 27, 2008, and was closed on February 1, 2010. The last of the CPFF LLC’s commercial paper holdings matured on April 26, 2010, and the CPFF LLC was dissolved on August 30, 2010. All loans that were made to the CPFF LLC were repaid in full, in accordance with the terms of the facility, and all of the commercial paper that the CPFF LLC purchased was repaid in accordance with the stated terms.