On March 18, 2020, the Board of Governors of the Federal Reserve System (“Federal Reserve”) established a facility that will provide liquidity to certain types of money market mutual funds (“MMFs”) by making secured loans to financial institutions that purchase certain assets from MMFs (the Money Market Mutual Fund Liquidity Facility, or “MMLF”). The MMLF is intended to support prime, state and municipal MMFs that experience significant stress in the coming days in the event that investors seek to liquidate MMF shares into cash. This facility is similar to one operated by the Federal Reserve during the 2008 financial crisis but will be available for a wider range of assets. It also builds on efforts taken last week through the launch of the Commercial Paper Funding Facility to purchase unsecured and asset-backed commercial paper rated A1/P1 directly from eligible companies and the Primary Dealer Credit Facility to offer overnight and term-secured funding to primary dealers.
We recommend that financial institutions review the procedures used in connection with the 2008 facility and that MMFs begin discussions with financial institutions regarding liquidity support through the MMLF.