The Federal Reserve is creating an emergency lending program to help unblock a short-term credit market that has been disrupted by the new coronavirus outbreak.
The Fed said on Wednesday afternoon that it will lend money to banks that acquire financial assets from money market investment funds, including short-term IOUs known as commercial paper.
By facilitating the purchase of commercial paper, which is issued by large companies and banks, the Fed hopes to stimulate more lending to companies seeking to raise cash as their revenues plummet amid the spread of coronavirus.
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The program is the third Fed facility has revived from the days of the 2008 financial crisis, when the central bank created a soup of program alphabets designed to keep financial markets afloat.
This facility, known as the Money Market Mutual Fund Liquidity Facility, is designed to help money market funds unload assets such as commercial paper, but also Treasury securities and bonds secured by mortgage giants Fannie Mae and Freddie Mac. .
Money market investment funds are owned by individual investors rather than intermediaries, but also by institutional and corporate investors. Many of the funds have sought in the last two weeks to sell assets to raise cash, as many investors seek shares of the funds. However, as demand for cash rises as stocks fall and the economy slows sharply, money market funds have struggled to find buyers for their assets.
The Fed’s latest facility aims to support the demand for commercial paper so that companies can continue to borrow.
The program was established with the support of the Treasury Department, which will guarantee up to $ 10 billion in facility loans.
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- Federal Reserve
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