Today the Federal Reserve Board announced the creation of a Money Market Investor Funding Facility (MMIFF) to provide liquidity to money market funds.
Under the MMIFF, special purpose vehicles (SPVs) established by the private sector will purchase the following types of debt instruments from money market funds at their amortized cost:
- U. S. dollar-denominated certificates of deposit,
- bank notes, and
- commercial paper with a remaining maturity of not more than 90 days.
However, each SPV will purchase only debt instruments issued by ten financial institutions that are identified in the SPV's operational documents and that have a short-term debt rating of at least A-1/P-1/F-1 from two or more major NRSROs.
Each SPV will finance its purchase of any eligible asset from a money market fund by issuing asset-backed commercial paper and by borrowing under the MMIFF. As payment for 10% of the asset's purchase price, the SPV will issue asset-backed commercial paper to the money market fund. This asset-backed commercial paper will have the same maturity as the asset purchased from the money market fund and will be rated at least A-1/P-1/F-1 by two or more major NRSROs. The Federal Reserve Bank of New York will commit to lend to the SPV 90% of the price of each asset the SPV purchases from the money market fund.
Further information may be found at http://www.federalreserve.gov/newsevents/press/monetary/20081021a.htm
The MMIFF announced today complements a previously announced Commercial Paper Funding Facility that, on October 27, 2008, will begin funding purchases of highly-rated, U.S. dollar-denominated, three-month, unsecured and asset-backed commercial paper of U.S. issuers. It also complements the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility that was announced on September 19, 2008, which extends loans to banking organizations to purchase asset-backed commercial paper from money market funds.