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Document Type

Case Study

Case Series

Market Support Programs

JEL Codes

G01, G28

Abstract

At the onset of the COVID-19 pandemic in March 2020, prime and tax-exempt money market funds (MMFs) faced increased demands for redemption. Meeting redemptions required MMFs to sell assets into increasingly illiquid markets. Using the emergency authority outlined in Section 13(3) of the Federal Reserve Act, the Board of Governors of the Federal Reserve established the Money Market Mutual Fund Liquidity Facility (MMLF), a facility similar in structure and purpose to a program that the Fed implemented in 2008 amidst the Global Financial Crisis (GFC). The MMLF extended nonrecourse loans to banks and their affiliates for the purchase from some types of MMFs of certain high-quality assets, including government securities, secured and unsecured commercial paper, and short-term municipal debt. Borrowers pledged the purchased assets as collateral for the loans with the Federal Reserve Bank of Boston (FRBB), which administered the MMLF. The MMLF accepted a wider range of collateral than the GFC-era program, which only accepted asset-backed commercial paper. FRBB was also further protected by $10 billion in credit protection from the Treasury Department, unlike the GFC-era program. Use of the MMLF peaked at $53.8 billion in loans outstanding the week of April 9, 2020, then gradually decreased. The MMLF expired on March 31, 2021, after two extensions to its operating dates.

Date Revised

2022-07-15

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