The Federal Reserve’s Commercial Paper Funding Facility

Adrian, Tobias; Kimbrough, Karin; Marchioni, Dina

Journal Article

The Federal Reserve’s Commercial Paper Funding Facility

Abstract: Established in the wake of Lehman Brothers? bankruptcy to stabilize severe disruptions in the commercial paper market, the Commercial Paper Funding Facility (CPFF) allowed the Federal Reserve to act as a lender of last resort for issuers of commercial paper, thereby effectively addressing temporary liquidity distortions and alleviating the severe funding stress that threatened to further exacerbate the financial crisis. In doing so, the CPFF can be considered a noteworthy model of liquidity provision in a market-based financial system, where maturity transformation occurs outside of the commercial banking sector. Authored by Tobias Adrian, Karin Kimbrough and Dina Marchioni, this paper examines the creation and performance of the CPFF, while simultaneously outlining the evolution and importance of the commercial paper market before and during the CPFF (which expired February 1, 2010). ; Title of Special Issue: Federal Reserve Policy Responses to the Financial Crisis.

Keywords: Liquidity (Economics); Money supply; Money market; Federal Reserve System; Financial crises; Intermediation (Finance); Portfolio management; Discount window; Commercial paper;