Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility

The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility was a lending program created by the Federal Reserve Board in September 19, 2008 to provide liquidity to money market mutual funds.

Since at the time, many money markets were very illiquid, the Fed created this funding facility to provide non-recourse loans at the primary credit rate to US depository institutions and bank holding companies in order to allow them to buy high-quality asset-backed commercial paper from money market mutual funds.

This program aimed to help the money funds to meet demands for redemptions and hence prevent default.

“All U.S. depository institutions, bank holding companies (parent companies or U.S. broker-dealer affiliates), and U.S. branches and agencies of foreign banks are eligible to borrow under this facility pursuant to the discretion of the Reserve Bank” were eligible to borrow.

This lending facility borrowing peak in October 8, 2008 at $145.890 billion. (Additional source: http://www.research.stlouisfed.org/fred2/series/WABCMMF)

The program, that had started operating in September 22, 2010, was ended in February 1, 2010, since the Fed did not to extended it anymore.

This lending program seems to have been important to provide liquidity to the MMMFs and hence reduced stress on the financial markets.