The Money Market Mutual Fund Liquidity Facility, or MMLF, will make loans available, through the Federal Reserve Bank of Boston, to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds.
This event, shortly after the Lehman Brothers' bankruptcy application was filed, accelerated the credit freeze throughout the economy and worsened the financial crisis.
This facility, known as the Money Market Mutual Fund Liquidity Facility, is meant to help money market funds unload assets such as commercial paper, but also Treasury securities and bonds guaranteed by mortgage giants Fannie Mae and Freddie Mac. With this pledge, it's hoping to assure investors they should have no worries about these funds.
The new facilities total $60 billion for central banks in Australia, Brazil, South Korea, Mexico, Singapore, and Sweden, and $30 billion each for Denmark, Norway, and New Zealand.
"The economic disruption and uncertainty created by COVID-19 has created challenges for the commercial paper market, constraining access to short-term credit for American businesses", Mnuchin said.
Leslie Falconio, senior fixed income strategist at UBS, said that in 2008 the Fed bought 20% of all the commercial paper then outstanding, or about $350 billion.
The program is the third facility the Fed has revived from the financial crisis days of 2008, when the central bank set up an alphabet soup of programs meant to keep financial markets functioning. The Fed also allowed banks to lend from cash reserves that it had previously required banks to hold. The Fed had swap lines outstanding to 14 central banks in the financial crisis.