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Comment: Fed opens another credit facility to ease liquidity, this time for mutual funds

Just before midnight on March 18, the Fed announced a third liquidity facility to help keep markets functioning in the first weeks of radical efforts to curb the spread of COVID-19. The Money Market Mutual Fund Liquidity Facility (MMLF) was established to allow the Boston Fed – the District that is home to some of the larger mutual funds – to “make loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds,” and to “assist money market funds in meeting demands for redemptions by household and other investors, enhancing overall market functioning and credit provision to the broader economy.” The program was designed to run through September 30, 2020 unless it is extended. Details were provided in a separate attachment. The announcement noted the new facility is similar to the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) in place from late 2008 to early 2010. See below for history of that fund.

The original AMLF was part of other actions, not just for mutual funds:

Asset-Backed Commercial Paper (ABCP), Money Market Mutual Fund (MMMF), Liquidity Facility (AMLF)

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

January 30, 2009 – The Fed announced two final rules pertaining to the AMLF which extended loans to banking organizations to finance their purchases of high-quality ABCP from money market mutual funds.

September 19, 2008 – The Fed extended non-recourse loans at the primary credit rate to the US depository institutions and bank holding companies to finance purchases of high-quality asset-backed commercial paper (ABCP) from money market mutual funds. Also planned to purchase from primary dealers federal agency discount notes (short-term debt obligations issued by Fannie Mae, Freddie Mac and FHLB).

There was also a Money Market Investor Funding Facility (MMIFF) instituted in October 2008 that lapsed unused in June 25, 2009.

For more history on the Fed’s crisis-era liquidity facilities, please see the Whetstone Analysis Reference Library.

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