26 Jun 2009, Alexander Campbell, Risk magazine
The Money Market Investor Funding Facility, set up in October 2008 to help out struggling money market funds, had made no loans at all by the end of April this year – it is due to expire in October this year and will not be extended, the Fed said. The Commercial Paper Funding Facility (CPFF), which serves a similar purpose, had advanced $235.2 billion in loans by the end of April, but as it lends at a premium, its rates are "increasingly unattractive for many borrowers as market conditions improve, and accordingly usage of the CPFF is declining fairly steadily," the Fed said.
Additionally, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), set up in January to fund banks' purchases of asset-backed commercial paper from money market mutual funds, has also seen dwindling demand. The Fed has kept it running, but imposed a condition that funds would have to see significant outflows before they would be allowed to sell asset-backed commercial paper under the programme.
More successful programmes will be reduced in size. The Term Auction Facility (TAF) was one of the first bank support facilities, set up in December 2007 to support depository institutions with 28-day discount-rate loans. The first of the bi-weekly auctions offered only $20 billion in loans, but this was ramped up as the crisis worsened, reaching $150 billion in October 2008. Demand then started to wane, with bid/cover ratios falling in November; the amount will now be cut back to $125 billion, and could be cut further in coming months, the Fed said.
The Term Securities Lending Facility (TSLF), which has also seen falling demand, will also be reduced – the total amount offered will be cut to $75 billion from $200 billion, and lending against Treasuries and agency debt will be suspended in the face of "very weak demand".
The Fed extended the AMLF, CPFF, and the TSLF to February 2010, as well as the Primary Dealer Credit Facility, another loan programme which currently has no loans outstanding, but left room for their expansion and further extension if the recovery should falter.
"Should the recent improvements in market conditions continue, the Board and the Federal Open Market Committee (FOMC) currently anticipate that a number of these facilities may not need to be extended beyond February 1. However, if financial stresses do not moderate as expected, the Board and the FOMC are prepared to extend the terms of some or all of the facilities as needed to promote financial stability and economic growth," the Fed said.
The Term Asset-backed Securities Loan Facility, set up to support the securitised loan market, was not extended and will expire at the end of the year.
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