The President's Working Group on Financial Markets issued a statement this morning saying, "Conditions in U.S. and global financial markets remain extremely strained. The President's Working Group on Financial Markets (PWG) is working with market participants and regulators globally to address the current challenges and restore confidence and stability to financial markets around the world. With the passage of the Emergency Economic Stabilization Act of 2008 (EESA), Congress has granted important new authorities to the Treasury, Federal Reserve, and the FDIC. These new authorities will be employed in conjunction with existing authorities to restore market confidence by strengthening the balance sheets of financial intermediaries and improving overall market functioning."
Addressing the "cash" or money markets, the statement says, "Bank deposits and money markets funds play an important role in the savings and investing of Americans. These savings and investment vehicles are critical to investor confidence. They also provide funds for financing activity that is so critically important to our credit markets. Last month, the Treasury Department announced a temporary guarantee program for money market mutual funds. That program began operations last Monday. [See story below for the list of funds participating.] This action was complemented by the Federal Reserve providing additional liquidity to money market mutual funds with their Asset Backed Commercial Paper (ABCP) Money Market Mutual Fund (MMMF) Liquidity Facility (AMLF) program, which has brought liquidity to the ABCP market."
It continues, "Today, the Federal Reserve is taking additional actions to enhance the flexibility of bank holding companies to provide support to their bank sponsored funds. In addition, the Securities and Exchange Commission and the FASB issued a clarification regarding the valuation of assets, including commercial paper, during such periods of market stress. In addition, the recent legislation temporarily increases the amount that the FDIC insures in bank and thrift deposits from $100,000 to $250,000. The legislation also increases the FDIC's ability to borrow from the Treasury if needed. Collectively these actions should enhance market stability and investor confidence in such funds."
The statement also says, under "Increasing Liquidity to Financial Markets," "With regard to liquidity, the Federal Reserve has introduced a series of innovative facilities and policies to enhance liquidity in our markets. These include the Term Auction Facility, Primary Dealer Credit Facility, Term Securities Lending Facility, and Currency swaps. The Federal Reserve will continue to take a leadership role with respect to liquidity in our markets. It is committed to using all of the tools at its disposal to provide the increased liquidity that is now required for the effective functioning of financial markets. In this regard, the authority to pay interest on reserves that was provided by EESA is essential, because it allows the Federal Reserve to expand its balance sheet as necessary to support financial stability while conducting a monetary policy that promotes the Federal Reserve's macroeconomic objectives of maximum employment and stable prices."
Finally, it says, "The Federal Reserve and the Treasury Department are consulting with market participants on ways to provide additional support for term unsecured funding markets."
