Commercial Paper Funding Facility
Encyclopedia
Commercial Paper Funding Facility (CPFF) was a system created by the United States Federal Reserve Board during the Global financial crisis of 2008 to improve liquidity in the short-term funding markets. The CPFF was created on October 27, 2008 and funded a special purpose vehicle (SPV) that purchased three-month unsecured and asset-backed commercial paper
(CP) from eligible issuers. This resulted in greater availability of credit for firms doing business. It worked under the aegis of the Federal Reserve Bank of New York
where the NY Fed finances the purchase of highly-rated unsecured and asset-backed commercial paper from eligible issuers via eligible primary dealers. The facility expired February 1, 2010. The final CP purchased matured on April 26, 2010. All CP notes purchased were repaid in full.
and government bailout of AIG
and the global credit freeze that ensued. The CPFF method of short-term funding provided liquidity to U.S. issuers of commercial paper through a special purpose vehicle, aka SPV, which bought unsecured and asset-backed commercial paper for 3 month period from eligible issuers with funds made available by the NY Fed. The commercial paper remained in the custody of the SPV till the CP matured. On maturity, the proceeds from commercial paper and other assets were used to repay the loan that was originally taken from the NY Fed. All purchases of the Commercial Papers by the SPV was done through the New York Fed’s primary dealers. This program lent out a total $738 billion before it was closed. 45 out 81 of the companies participating in this program were foreign firms. Research shows that Troubled Asset Relief Program (TARP) recipients were twice as likely to participate in the program than other commercial paper issuers who did not take advantage of the TARP bailout. The Fed incurred no losses from the CPFF.
This program was created at the same time that the Federal Deposit Insurance Corporation
implemented the Temporary Liquidity Guarantee Program
to increase liquidity in inter-bank lending.
The commercial paper had to be rated at least A-1/P-1/F1 by a major nationally recognized statistical rating organization (NRSRO) and, if rated by multiple major NRSROs, must have been rated at least A-1/P-1/F1 by two or more major NRSROs.
As part of the application process to be eligible for this program issuers had to pay a 10 basis point (0.1%) fee based on their maximum CP balance during the active period mentioned above.
Commercial paper
In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of 1 to 270 days. Commercial Paper is a money-market security issued by large banks and corporations to get money to meet short term debt obligations , and is only backed by an issuing bank or...
(CP) from eligible issuers. This resulted in greater availability of credit for firms doing business. It worked under the aegis of the Federal Reserve Bank of New York
Federal Reserve Bank of New York
The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is located at 33 Liberty Street, New York, NY. It is responsible for the Second District of the Federal Reserve System, which encompasses New York state, the 12 northern counties of New Jersey,...
where the NY Fed finances the purchase of highly-rated unsecured and asset-backed commercial paper from eligible issuers via eligible primary dealers. The facility expired February 1, 2010. The final CP purchased matured on April 26, 2010. All CP notes purchased were repaid in full.
Explanation
The CPFF began operations on October 27, 2008 following the collapse of Lehman BrothersLehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
and government bailout of AIG
AIG
AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...
and the global credit freeze that ensued. The CPFF method of short-term funding provided liquidity to U.S. issuers of commercial paper through a special purpose vehicle, aka SPV, which bought unsecured and asset-backed commercial paper for 3 month period from eligible issuers with funds made available by the NY Fed. The commercial paper remained in the custody of the SPV till the CP matured. On maturity, the proceeds from commercial paper and other assets were used to repay the loan that was originally taken from the NY Fed. All purchases of the Commercial Papers by the SPV was done through the New York Fed’s primary dealers. This program lent out a total $738 billion before it was closed. 45 out 81 of the companies participating in this program were foreign firms. Research shows that Troubled Asset Relief Program (TARP) recipients were twice as likely to participate in the program than other commercial paper issuers who did not take advantage of the TARP bailout. The Fed incurred no losses from the CPFF.
This program was created at the same time that the Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
implemented the Temporary Liquidity Guarantee Program
Temporary Liquidity Guarantee Program
The Temporary Liquidity Guarantee Program is a program adopted by the Federal Deposit Insurance Corporation on October 13, 2008 during the Global financial crisis of 2008 to encourage liquidity in the interbank lending market....
to increase liquidity in inter-bank lending.
Eligibility
Only "Active" U.S. issuers of commercial paper (including those with a foreign parent), were eligible to sell commercial paper to the SPV. Active was defined as having at least three consecutive months of commercial paper outstanding during the period starting January 1, 2008 through August 31, 2008.The commercial paper had to be rated at least A-1/P-1/F1 by a major nationally recognized statistical rating organization (NRSRO) and, if rated by multiple major NRSROs, must have been rated at least A-1/P-1/F1 by two or more major NRSROs.
As part of the application process to be eligible for this program issuers had to pay a 10 basis point (0.1%) fee based on their maximum CP balance during the active period mentioned above.