The Federal Reserve Board just announced changes to its Money Market Investor Funding Facility (MMIFF), one of the myriad support program put in place to "help restore liquidity to the money markets." The MMIFF is meant to purchase commercial paper and certificates of deposits from money funds, and the new changes expand the program to include LGIPs (local government investment pools), STIFs (short-term investment funds), and securities lending pools. Offshore money funds continue to be excluded.
The Fed's statement says, "First, the set of institutions eligible to participate in the MMIFF was expanded from U.S. money market mutual funds to also include a number of other money market investors. The newly eligible participants include U.S.-based securities-lending cash-collateral reinvestment funds, portfolios, and accounts (securities lenders); and U.S.-based investment funds that operate in a manner similar to money market mutual funds, such as certain local government investment pools, common trust funds, and collective investment funds. The possibility that the set of eligible investors would be expanded beyond money market mutual funds to include other money market investors was noted when the program was first announced on October 21, 2008."
It continues, "Second, the Board authorized the adjustment of several of the economic parameters of the MMIFF, including the minimum yield on assets eligible to be sold to the MMIFF, to enable the program to remain a viable source of backup liquidity for money market investors even at very low levels of money market interest rates.... The Board authorized the MMIFF on October 21, 2008 under section 13(3) of the Federal Reserve Act. The MMIFF became operational on November 24, 2008."
"The MMIFF is designed to serve as a source of liquidity to money market mutual funds and other eligible money market investment vehicles, thereby increasing their ability to meet redemption requests and their willingness to invest in money market instruments, particularly term money market instruments. Under the MMIFF, the Federal Reserve Bank of New York provides a credit facility to a series of special purpose vehicles (SPVs) established by the private sector. The SPVs will purchase certain U.S. dollar-denominated, highly rated, short-term certificates of deposit, bank notes, and commercial paper from eligible money market investors."
The Fed's Terms and conditions may be seen here, the Fed's MMIFF Frequently Asked Questions may be seen here, and the Fed's H.4.1 "Factors Affecting Reserve Balances" may be seen here. The MMIFF continues to show a balance of zero and has yet to be used by money funds, which have not seen a need for borrowing to meet redemptions over the past couple of months. Prime funds have seen assets recover and have seen particularly strong inflows since Jan. 1.
