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Document Type

Case Study

Case Series

Market Support Programs

JEL Codes

G01, G28

Abstract

During the COVID-19 crisis, sterling-denominated money markets froze, and otherwise-healthy companies were shut out of short-term, wholesale funding markets. To unfreeze these markets, the UK government announced a series of corporate funding measures. One of the measures was the Covid Corporate Financing Facility (CCFF), which enabled the Bank of England (BoE), acting on behalf of Her Majesty's Treasury's, to purchase commercial paper (CP) on primary and secondary markets from eligible dealers. The purpose of the CCFF was to provide stopgap wholesale funding to large, financially healthy firms while preserving British banks' capacity to serve small and medium-sized companies. Under the facility, BoE created central bank reserves to buy standard CP with maturities between one week and 12 months. While BoE did not set any purchase limits, it assigned limits to individual issuers based on their credit ratings. Eligible issuers included financially healthy companies that made a material contribution to the UK economy. Eligible dealers were identified on a case-by-case basis, and all counterparties required authorization to transact with BoE under the Financial Services and Markets Act 2000. BoE conducted the CCFF in bilateral transactions and priced CP at a spread above an overnight index swap reference rate. Participating issuers were required to restrict dividends, capital distributions, and senior executive pay. Issuers were permitted to repurchase their securities prior to maturity. BoE began purchasing securities on March 23, 2020, and finished all purchases on March 22, 2021, though BoE continues to hold securities in the CCFF into March 2022. Scholars have not yet formally evaluated the CCFF.

Date Revised

2022-07-15

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