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Comment: A second liquidity facility reappears — the PDCF — from the financial crisis

On March 17, the Federal Reserve announced it will establish a Primary Dealer Credit Facility (PDCF) to “allow primary dealers to support smooth market functioning and facilitate the availability of credit to businesses and households.”  The facility will offer overnight and term funds with maturities of up to 90 days. It will be active as of March 20 and be in place “for at least six  months” to start and could be extended, if warranted. “A broad range of investment grade debt securities, including commercial paper and municipal bonds, and  broad range of equity securities” will be accepted as collateral for lending. “The interest rate charged will be the discount rate which is at present at 0.25%.

The original PDFC:

June 25, 2009 – The PDCF was extended through Feb. 1, 2010, although the amount outstanding was $0. “The Board believes it appropriate to continue to provide the GDCP as a backstop liquidity facility for primary dealers in the near term, while financial market conditions remain somewhat fragile,” the statement said.

February 3, 2009 – The Fed extended existing liquidity programs through October 30, 2009, including the PDCF, as well as existing swap lines with numerous central banks.

September 14, 2008 – Collateral eligible to be pledged at the PDCF was broadened to closely match the types of collateral that can be pledged in the tri-party repo systems of the two major clearing banks.

July 30, 2008 – PDCF extended through January 30, 2009.

March 16, 2008 – PDCF authorized at Federal Reserve Bank of New York to provide financing to participants in securitization markets, starting March 17 and available for at least six months with the possibility of extension should conditions warrant it, and to be collateralized by a broad range of investment-grade debt securities.

For a fuller history of lending facilities used during the financial crisis, see the Whetstone Analysis Reference Library‘s “Federal Reserve Balance Sheet Developments”.

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