Yesterday, the Federal Reserve released "detailed information about transactions conducted to stabilize markets during the recent financial crisis." The Fed's statement says, "The Federal Reserve Board on Wednesday posted detailed information on its public website about more than 21,000 individual credit and other transactions conducted to stabilize markets during the recent financial crisis, restore the flow of credit to American families and businesses, and support economic recovery and job creation in the aftermath of the crisis. Many of the transactions, conducted through a variety of broad-based lending facilities, provided liquidity to financial institutions and markets through fully secured, mostly short-term loans."
It continues, "As financial conditions have improved, the need for the broad-based facilities has dissipated, and most were closed earlier this year. The Federal Reserve followed sound risk-management practices in administering all of these programs, incurred no credit losses on programs that have been wound down, and expects to incur no credit losses on the few remaining programs. These facilities were open to participants that met clearly outlined eligibility criteria; participation in them reflected the severe market disruptions during the financial crisis and generally did not reflect participants' financial weakness."
The statement adds, "The Federal Reserve is committed to transparency and has previously provided extensive aggregate information on its facilities in weekly and monthly reports. As provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, transaction-level details now are posted from December 1, 2007, to July 21, 2010, in the following programs: Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), Term Asset-Backed Securities Loan Facility (TALF), Primary Dealer Credit Facility (PDCF), Commercial Paper Funding Facility (CPFF).... The data made available Wednesday can be downloaded in multiple formats, including Excel, at www.federalreserve.gov/newsevents/reform_transaction.htm."
Under, "Usage of Federal Reserve Credit and Liquidity Facilities," the Fed's release comments, "This section of the website provides detailed information about the liquidity and credit programs and other monetary policy tools that the Federal Reserve used to respond to the financial crisis that emerged in the summer of 2007. These programs fall into three broad categories -- those aimed at addressing severe liquidity strains in key financial markets, those aimed at providing credit to troubled systemically important institutions, and those aimed at fostering economic recovery by lowering longer-term interest rates."
It adds, "The emergency liquidity programs that the Federal Reserve set up provided secured and mostly short-term loans. Over time, these programs helped to alleviate the strains and to restore normal functioning in a number of key financial markets, supporting the flow of credit to businesses and households. As financial markets stabilized, the Federal Reserve closed most of these programs. Indeed, many of the programs were intentionally priced to be unattractive to borrowers when markets are functioning normally and, as a result, wound down as market conditions improved. The programs achieved their intended purposes with no loss to taxpayers."
About its AMLF, the Fed explains, "Money market mutual funds (MMMFs) are common investment vehicles that, in aggregate, hold trillions of dollars in funds on behalf of individuals, pension funds, municipalities, businesses, and others. During the financial crisis, MMMFs experienced significant withdrawals of funds by investors and were forced to meet the demand for withdrawals by selling assets in illiquid markets. The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) was introduced to help MMMFs that held asset-backed commercial paper (ABCP) meet investors' demands for redemptions, and to foster liquidity in the ABCP market and money markets more generally."
It says, "The AMLF was designed to provide a market for ABCP that MMMFs sought to sell. Under the program, the Federal Reserve provided nonrecourse loans to U.S. depository institutions, U.S. bank holding companies, U.S. broker-dealer subsidiaries of such holding companies, and U.S. branches and agencies of foreign banks. These institutions used the funding to purchase eligible ABCP from MMMFs. Borrowers under the AMLF, therefore, served as conduits in providing liquidity to MMMFs, and the MMMFs were the primary beneficiaries of the AMLF. AMLF loans were fully collateralized by the ABCP purchased by the AMLF borrower. The ABCP had to meet eligibility requirements outlined in the program's terms and conditions. Further, to help ensure that the AMLF was used for its intended purpose, the Federal Reserve later required that an MMMF had to experience material outflows before the ABCP that it sold would be eligible collateral for AMLF loans."
The Fed writes, "The AMLF was created by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, which permitted the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations. The facility was administered by the Federal Reserve Bank of Boston, which was authorized to make AMLF loans to eligible borrowers in all 12 Federal Reserve Districts. The facility was announced on September 19, 2008, and was closed on February 1, 2010. All loans made under the facility were repaid in full, with interest, in accordance with the terms of the facility."
