Document Type

Case Study

Case Series

Market Liquidity Programs

JEL Codes

G01, G28


In mid-September 2008, prime money market mutual funds (MMMFs) began experiencing run-like redemption requests sparked by one fund that had “broken the buck” because of large exposure to Lehman Brothers commercial paper (CP). As a result, MMMFs, which are significant investors in CP, became reluctant to hold CP. Within a week, outstanding CP had been reduced by roughly $300 billion. The CP market experienced severe shortening of maturities and increased rates, making it difficult for issuers to place new paper. When government efforts to assist the MMMFs did not resolve the stresses in the CP market, the Federal Reserve announced, on October 7, 2008, the Commercial Paper Funding Facility (CPFF), which sought to backstop the CP market and revive term lending.

The CPFF (through a special purpose vehicle) purchased highly rated US dollar–denominated three-month unsecured and asset-backed commercial paper (ABCP) from eligible US issuers. Purchases were funded with loans from the Federal Reserve Bank of New York (FRBNY). The CPFF was highly utilized in its first weeks, purchasing the overwhelming majority of new term CP; its usage then waned as market conditions improved. At its highest level, in January 2009, the CPFF held $350 billion—20% of all outstanding CP. The CPFF expired on February 1, 2010, with all loans paid in full. The program accumulated approximately $5 billion in earnings that was paid to the FRBNY. The program is credited with backstopping the market, providing a rollover option for maturing paper, and providing much needed year-end financing. Its role in helping to revive the term-lending market, however, has been debated, but there is evidence that it did help increase lending between CPFF participants and their relationships with nonfinancial corporate borrowers.

Date Revised