Fed Plans CP Facility

The Federal Reserve Board Tuesday made plans for a commercial paper funding facility that aims to bolster flagging term funding markets' liquidity. "A large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and their difficulties placing commercial paper have made it more difficult for those intermediaries to play their vital role in meeting the credit needs of businesses and households," the Fed said, adding that it believes that the steps it is taking will improve the situation. The Fed's CPFF takes the form of a special purpose vehicle that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The Fed said it would provide financing to the SPV that "will be secured by all the assets of the SPV and, in the case of commercial paper that is not asset-backed commercial paper, by the retention of up-front fees paid by the issuers or by other forms of security acceptable to the Federal Reserve in consultation with market participants."