FRB Establishes Money Market Mutual Fund Liquidity Facility

The Federal Reserve Board ("FRB") established a Money Market Mutual Fund Liquidity Facility ("Facility") to address instability within the financial system as a result of COVID-19. In addition, the FRB, the Office of the Comptroller of the Currency ("OCC") and the FDIC (together, the "Agencies") adopted an interim final rule to neutralize potential regulatory capital effects for banking organizations participating in the program.

According to the Agencies, the final interim rule aims to lessen the burden on money market mutual funds that are experiencing heightened redemption requests from clients due to financial market disruptions. To address this issue, the Agencies authorized the Federal Reserve Bank of Boston to extend non-recourse loans through the Facility that are secured by high-quality assets ("Collateral"). The Agencies stated that the new rule will also allow banking organizations to participate in the program without increased capital requirements resulting from the addition of such Collateral to their balance sheets.

The Agencies emphasized that banking organizations participating in the Facility must acquire and hold assets on their balance sheets as collateral and, as a result, may be subject to increased capital requirements.

In addition, because a banking organization participating in the Facility is not exposed to credit or market risk from the assets it purchases, the Agencies are excluding the effects of purchased assets under the Facility from an organization's regulatory capital.

The rule is effective immediately. Comments must be submitted 45 days following its publication in the Federal Register.