FRB Establishes Commercial Paper Funding Facility to Address Financial Strain on Market
The Federal Reserve Board ("FRB") established a Commercial Paper Funding Facility ("CPFF") "to support the flow of credit to households and businesses due to the coronavirus outbreak."
The FRB stated that the CPFF will provide a liquidity backstop to commercial paper issuers using a special purpose vehicle to purchase commercial paper that is both unsecured and asset-backed (rated "A-1/P-1" as of March 17, 2020) directly from eligible companies. The FRB highlighted several benefits of using the CPFF, such as:
- removing the risk of issuers being unable to repay;
- incentivizing investors to engage in term lending in the commercial paper market; and
- keeping employment and investment rates steady.
The FRB noted that the Treasury Department is providing $10 billion worth of credit protection from the Treasury Department's Exchange Stabilization Fund to the FRB for CPFF-related purposes.
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