Federal Reserve to Support Commercial Paper Market and Broaden Role as Lender of Last Resort

In a dramatic and potentially far-reaching move, the Federal Reserve Board announced in a press release on Tuesday, October 7, the creation of the “Commercial Paper Funding Facility” (CPFF), a facility intended to restore liquidity to the strained U.S. commercial paper markets.  According to the CPFF’s “Program Terms and Conditions,” available on the website of the Federal Reserve Bank of New York, the CPFF will be structured as a credit facility to a special purpose vehicle (SPV) that will purchase three-month commercial paper – both asset-backed commercial paper and unsecured commercial paper – directly from “eligible” issuers.  The facility is being established pursuant to the Fed’s emergency authority under Section 13(3) of the Federal Reserve Act (available in “unusual and exigent circumstances”), which permits the purchase of notes assets from “any individual, partnership, or corporation.” 

This Stroock Special Bulletin highlights the key provisions of the Program Terms and Conditions for the CPFF, and the importance of this development for the commercial paper market.