Fed Unveils New Commercial Paper, Primary Dealer Credit Facilities

To help ensure the continued flow of credit to households and businesses and support smooth market functioning, the Federal Reserve yesterday announced that it will establish new facilities for commercial paper funding and primary dealer credit using its authority under Section 13(3) of the Dodd-Frank Act.

The commercial paper funding facility will provide a liquidity backstop to U.S. issuers of commercial paper—which finances a range of economic activity, including the operational needs of companies—by allowing the Fed to purchase unsecured and asset-backed commercial paper directly from eligible companies. The U.S. Treasury will provide $10 billion of credit protection to the Fed in connection with the CPFF from the Treasury’s Exchange Stabilization Fund.

“By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market,” the Fed said in a statement. “An improved commercial paper market will enhance the ability of businesses to maintain employment and investment as the nation deals with the coronavirus outbreak.

The Fed also announced a new primary dealer credit facility, which starting on March 20 will offer overnight and term funding with maturities up to 90 days. The PDCF will be available for at least six months and may be extended. Collateral for credit extended through the PDCF may include a broad range of investment-grade debt securities and equity securities.