Financial Markets in Crisis: Fed Announces a Third Funding Facility Designed to Increase Market Liquidity

October 21, 2008

The Gibson, Dunn & Crutcher Financial Markets Crisis Group is tracking closely government responses to the turmoil that has catalyzed dramatic and rapid reshaping of our capital and credit markets.

We are providing updates on key regulatory and legislative issues as well as information on legal issues that we believe could prove useful as firms and other entities navigate these challenging times.

This update focuses on three funding facilities implemented by the Federal Reserve Board over the last month pursuant to its authority under Section 13(3) of the Federal Reserve Act.

Federal Reserve Funding Facilities

Previously, the Federal Reserve Board had created two funding facilities to inject liquidity into markets.  Today, the Fed announced a third — the Money Market Investor Funding Facility (MMIFF).  This facility will help provide liquidity to U.S. money market investors by offering senior secured funding to private-sector, special purpose vehicles (PSPVs).  The PSPVs will purchase eligible assets from U.S. money market mutual funds (MMMFs) and, over time, possibly other money market investors.  Dollar-denominated certificates of deposit, bank notes, and commercial paper issued by highly rated financial institutions with maturities of 90 days or less are eligible to be purchased by PSPVs.  Treasury will designate ten financial institutions (each with a short-term debt rating of at least A-1/P-1/F1) for each PSPV, which will only purchase debt instruments from the ten.    PSPVs may not purchase debt instruments in excess of 15 percent of its assets.  Purchases are scheduled to cease on April 30, 2009.

By creating this facility, the Fed hopes to assist money market investors to meet redemption requests and increase investments in money market instruments.  This liquidity should enable financial institutions to offer credit to businesses and individuals more readily.[1]  The Fed has not announced when this program will begin. 

On October 27, 2008, the Fed’s Commercial Paper Funding Facility (CPFF) will begin funding purchases of highly rated, U.S. dollar denominated, three-month, unsecured and asset-backed commercial paper (ABCP) issued by U.S. issuers.  The CPFF will only purchase commercial paper rated at least A-1/P-1/F1 and will not purchase from a single issuer more than the greatest amount of commercial paper that the issuer had outstanding on any day between January 1 and August 31, 2008. 

The facility will operate through SPVs, which will purchase the commercial paper using financing from the Federal Reserve Bank of New York.  The SPVs will hold the paper until maturity and use the proceeds from the sales to repay their debts to the New York Fed.  Issuers must register with the CPFF to sell commercial paper to the facility by Thursday, October 23 if they wish to sell on October 27; otherwise, they must register two business days prior to their intended use of the CPFF.[2]  Issuers will also be required at the time of registration to pay a fee of 10 basis points of the maximum amount of commercial paper the program will purchase from the issuer.  Purchases are scheduled to cease on April 30, 2009.

The Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), administered by the Federal Reserve Bank of Boston, offers loans to banking entities to purchase asset-backed commercial paper from money market mutual funds.  The program began on September 19, 2008.  Asset-backed commercial paper must be rated at least A-1/P-1/F1 to be eligible for purchase.  Credit extensions are scheduled to cease on January 30, 2009.[3]

The table below summarizes some of the key features of the three programs. 

Funding Facility

Date Announced

Who Does the Purchasing?

Of What?

From Whom?


Sept 19, 2008

Banking Entities




Oct 7, 2008


(1) ABCP

(2) Unsecured Commercial Paper

Registered Issuers


Oct 21, 2008


(1) certificates of deposit

(2) bank notes

(3) commercial paper

(1) MMMFs

(2) over time, possibly other money market investors


  [1]   For more information about the MMIFF, see

  [2]   For more information about registration with the CPFF, see

  [3]   For more information about and to participate in the AMLF, see

Please view Gibson Dunn’s complete series of updates on the financial markets crisis on our website.

Gibson, Dunn & Crutcher LLP

Gibson Dunn has assembled a team of experts who are prepared to meet client needs as they arise in conjunction with the issues discussed above.  Please contact Michael Bopp (202-955-8256, [email protected]) in the firm’s Washington, D.C. office or any of the following members of the Financial Markets Crisis Group:

Public Policy Expertise
Mel Levine – Century City (310-557-8098, [email protected])
John F. Olson – Washington, D.C. (202-955-8522, [email protected])
Amy L. Goodman
– Washington, D.C. (202-955-8653, [email protected])
Alan Platt – Washington, D.C. (202- 887-3660, [email protected])
Michael Bopp – Washington, D.C. (202-955-8256, [email protected])

Securities Law and Corporate Governance Expertise
Ronald O. Mueller
– Washington, D.C. (202-955-8671, [email protected])
K. Susan Grafton – Washington, D.C. (202- 887-3554, [email protected])
Brian Lane – Washington, D.C. (202-887-3646, [email protected])
Lewis Ferguson – Washington, D.C. (202- 955-8249, [email protected])
Barry Goldsmith – Washington, D.C. (202- 955-8580, [email protected])
John H. Sturc
– Washington, D.C. (202-955-8243, [email protected])
Alan Bannister – New York (212-351-2310, [email protected])
Adam H. Offenhartz – New York (212-351-3808, [email protected])

Financial Institutions Law Expertise
Chuck Muckenfuss – Washington, D.C. (202- 955-8514, [email protected])
Christopher Bellini – Washington, D.C. (202- 887-3693, [email protected])
Amy Rudnick – Washington, D.C. (202-955-8210, [email protected])

Corporate Expertise
Howard Adler – Washington, D.C. (202- 955-8589, [email protected])
Richard Russo – Denver (303- 298-5715, [email protected])
Dennis Friedman – New York (212- 351-3900, [email protected])
Stephanie Tsacoumis – Washington, D.C. (202-955-8277, [email protected])
Robert Cunningham – New York (212-351-2308, [email protected])
Joerg Esdorn – New York (212-351-3851, [email protected])
Stewart McDowell – San Francisco (415-393-8322, [email protected])
C. William Thomas, Jr.
– Washington, D.C. (202-887-3735, [email protected])

Private Equity Expertise
E. Michael Greaney – New York (212-351-4065, [email protected])

Private Investment Funds Expertise
Edward Sopher – New York (212-351-3918, [email protected])

Real Estate Expertise
Jesse Sharf – Century City (310-552-8512, [email protected])
Alan Samson – London (+44 20 7071 4222, [email protected])
Andrew Levy – New York (212-351-4037, [email protected])
Fred Pillon – San Francisco (415-393-8241, [email protected])
Dennis Arnold – Los Angeles (213-229-7864, [email protected])
Andrew Lance – New York (212-351-3871, [email protected])
Eric M. Feuerstein – New York (212-351-2323, [email protected])
David J. Furman – New York (212-351-3992, [email protected])

Crisis Management Expertise
Theodore J. Boutrous, Jr. – Los Angeles (213-229-7804, [email protected])

Bankruptcy Law Expertise
Michael Rosenthal – New York (212-351-3969, [email protected])
Oscar Garza – Orange County (949-451-3849, [email protected])
Craig H. Millet – Orange County (949-451-3986, [email protected])
Janet M. Weiss – New York (212-351-3988, [email protected])

Tax Law Expertise
Arthur D. Pasternak – Washington, D.C. (202-955-8582, [email protected])
Paul Issler – Los Angeles (213-229-7763, [email protected])

Executive and Incentive Compensation Expertise
Stephen W. Fackler – Palo Alto (650-849-5385, [email protected])
Michael J. Collins – Washington, D.C. (202-887-3551, [email protected])
Sean C. Feller – Los Angeles (213-229-7579, [email protected])
Amber Busuttil Mullen – Los Angeles (213-229-7023, [email protected]

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