Last Monday, the Federal Reserve Bank of New York announced that "it would begin funding purchases of eligible money market instruments on or about November 24, 2008 through the previously announced Money Market Investor Funding Facility (MMIFF)." It also posted the document "Money Market Investor Funding Facility: Frequently Asked Questions," which "is intended to address operational questions about the Money Market Investor Funding Facility (MMIFF)." (It also posted the program's "Terms and Conditions.) Below we excerpt from the Q&A.
The FRBNY writes, "Why is the Federal Reserve establishing the MMIFF? The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have been increasing their liquidity positions by investing in shorter-term -- frequently overnight -- assets. By facilitating sales of money market instruments in the secondary market, the MMIFF should give money market mutual funds and other money market investors confidence that they can extend the terms of their investments and still maintain appropriate liquidity positions. Greater access to term financing from money market investors will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households."
It asks, "How will the MMIFF work?" and answers, "The Federal Reserve Bank of New York will provide senior secured funding to a series of special purpose vehicles established by the private sector (PSPVs) to finance the purchase of certain money market instruments from eligible investors. Eligible assets will include U.S. dollar-denominated certificates of deposit, bank notes and commercial paper issued by highly rated financial institutions. Assets must be eligible for settlement at the Depository Trust Company and have remaining maturities of at least 7 days and no more than 90 days. Eligible investors will include U.S. 2a-7 money market mutual funds and over time may include other U.S. money market investors."
The Q&A continues, "When will the MMIFF become operational? The New York Fed will begin funding PSPV purchases of eligible money market instruments in connection with the MMIFF on or about November 24, 2008." It also asks, "How big will the MMIFF be? and answers, "The PSPVs [private special purpose vehicles] will be authorized, in total, to purchase a maximum amount of $600 billion in eligible assets. Since the New York Fed will provide 90 percent of the financing of the PSPVs, Federal Reserve lending could total $540 billion."
"Why are only 2a-7 money market mutual funds eligible to sell assets to the PSPVs?" asks another Q&A. It answers, "The MMIFF is designed in large part to provide liquidity to money market mutual funds. The Federal Reserve's decision to establish the MMIFF hinges importantly on the key role money market mutual funds play as a source of short-term credit for financial and nonfinancial corporations. Other types of U.S. money market investors may become eligible investors over time."
Finally, the NY Fed says, "What steps can eligible investors take to participate in the MMIFF? Any eligible investor that seeks to participate in the MMIFF should contact JPMorgan Chase at 212-834-5389 to obtain MMIFF program information, including the list of assets eligible for purchase, required documentation and operating procedures. The documentation will include the Fund Representation Letter and an Asset Allocation Spreadsheet."
