Fed adoptd ABCP Lending Facility to provide liquidity to money markets mutual funds and ABCP markets

In lights of the ongoing dislocations in financial markets, and the impact of such dislocations on the functioning of ABCP markets, and on the operations of money market mutual funds, Fed adopted the ABCP Lending Facility on September 19th, 2008. The purpose of ABCP Lending Facility is to assist money market mutual funds to obtain liquidity by enabling them to sell some high quality secured assets at amortized costs.

Two interim final rules: relax restrictions preventing transactions between a bank and its affiliates.

The Federal Reserve Board on Friday approved two interim final rules in connection with its initiative to provide liquidity to markets by extending loans to banking organizations to finance their purchases of high-quality asset-backed commercial paper (ABCP) from money market mutual funds.

The first interim final rule would provide a temporary limited exception from the Board's leverage and risk-based capital rules for bank holding companies and state member banks. The second would provide a temporary limited exception from sections 23A and 23B of the Federal Reserve Act, which establish certain restrictions on and requirements for transactions between a bank and its affiliates.

The interim final rules approved by the Board will facilitate participation by depository institutions and bank holding companies in this special lending program as intermediaries between the Federal Reserve and money market mutual funds. These exceptions expire on January 30, 2009, unless extended by the Board, and are subject to various conditions to promote safety and soundness.

http://www.federalreserve.gov/newsevents/press/monetary/20080919c.htm

Two enhancements

The Federal Reserve Board on Friday announced two enhancements to its programs to provide liquidity to markets. One initiative will extend non-recourse loans at the primary credit rate to U.S. depository institutions and bank holding companies to finance their purchases of high-quality asset-backed commercial paper (ABCP) from money market mutual funds. This should assist money funds that hold such paper in meeting demands for redemptions by investors and foster liquidity in the ABCP markets and broader money markets.

To further support market functioning, the Federal Reserve also plans to purchase from primary dealers federal agency discount notes, which are short-term debt obligations issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

http://www.federalreserve.gov/newsevents/press/monetary/20080919a.htm Q. How will this program support money market mutual funds? A. Over the days prior to the initiation of the program, some money market mutual funds experienced significant demands for redemptions by investors. In ordinary circumstances, they would be able to meet those demands by selling assets. But many money markets have recently become extremely illiquid, including the asset-backed commercial paper (ABCP) markets. This program will help restore liquidity to the ABCP markets, which will help money funds meet demands for redemption.