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Home > News & Events > Press Releases

Press Release
October 07, 2008

Board announces creation of the Commercial
Paper Funding Facility (CPFF) to help provide
liquidity to term funding markets
For release at 9:00 a.m. EDT
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The Federal Reserve Board on Tuesday announced the creation of the
Commercial Paper Funding Facility (CPFF), a facility that will
complement the Federal Reserve's existing credit facilities to help
provide liquidity to term funding markets. The CPFF will provide a
liquidity backstop to U.S. issuers of commercial paper through a special
purpose vehicle (SPV) that will purchase three-month unsecured and
asset-backed commercial paper directly from eligible issuers. The
Federal Reserve will provide financing to the SPV under the CPFF and
will be secured by all of the assets of the SPV and, in the case of
commercial paper that is not asset-backed commercial paper, by the
retention of up-front fees paid by the issuers or by other forms of
security acceptable to the Federal Reserve in consultation with market
participants. The Treasury believes this facility is necessary to prevent
substantial disruptions to the financial markets and the economy and will
make a special deposit at the Federal Reserve Bank of New York in
support of this facility.
The commercial paper market has been under considerable strain in
recent weeks as money market mutual funds and other investors,
themselves often facing liquidity pressures, have become increasingly
reluctant to purchase commercial paper, especially at longer-dated
maturities. As a result, the volume of outstanding commercial paper has

shrunk, interest rates on longer-term commercial paper have increased
significantly, and an increasingly high percentage of outstanding paper
must now be refinanced each day. A large share of outstanding
commercial paper is issued or sponsored by financial intermediaries,
and their difficulties placing commercial paper have made it more
difficult for those intermediaries to play their vital role in meeting the
credit needs of businesses and households.
By eliminating much of the risk that eligible issuers will not be able to
repay investors by rolling over their maturing commercial paper
obligations, this facility should encourage investors to once again
engage in term lending in the commercial paper market. Added investor
demand should lower commercial paper rates from their current
elevated levels and foster issuance of longer-term commercial paper. An
improved commercial paper market will enhance the ability of financial
intermediaries to accommodate the credit needs of businesses and
households.
Commercial Paper Funding Facility Terms and Conditions

Last Update: October 07, 2008

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