Professional Documents
Culture Documents
Fed To Buy Commercial Paper
Fed To Buy Commercial Paper
In a move much anticipated on Wall Street, the bank announced a special credit facility to
purchase corporate paper from issuers.
The term refers to the critical short-term funding that businesses use to operate.
The Federal Reserve said Tuesday it is providing help to companies that are having a hard time
getting the short-term funding they need to operate.
In a move much anticipated on Wall Street, the bank announced a special credit facility to
purchase corporate paper from issuers that have been having a difficult time finding buyers on
the open market. Corporate paper involves unsecured short-term lending critical to business
funding.
Treasury Secretary Steven Mnuchin said in a morning news conference that the program could
total $1 trillion, though he does not expect it to reach that high.
“This is a crucial market for basically short-term borrowing by companies, and if you don’t get
this short-term borrowing, you can’t get payments out, you can’t pay your employees, you can’t
pay your customers,” Randall Kroszner, a former Fed governor, told CNBC. “If this freezes up,
it’s a real problem.”
The market did freeze during the financial crisis in 2008, and the Fed than was tasked with
finding a way to get operations flowing again.
The one-day facility announced Tuesday comes under the emergency 13(3) powers of the
Federal Reserve Act and will involve three-month paper for eligible companies. The cost will be
the three-month overnight index swap rate plus 200 points.
For funding, the New York Fed creates what is called a special purpose vehicle that is
guaranteed through the Treasury Department for $10 billion.
The move comes amid several other aggressive policy actions the Fed has taken in recent days.