Late last week, the Federal Reserve "announce[d] extensions of and modifications to a number of its liquidity programs". The Fed's release says, "The Federal Reserve on Thursday announced extensions of and modifications to a number of its liquidity programs. Conditions in financial markets have improved in recent months, but market functioning in many areas remains impaired and seems likely to be strained for some time.... [T]he Federal Reserve is extending a number of facilities through early 2010. At the same time, in light of the improvement in financial conditions and reduced usage of some facilities, the Federal Reserve is trimming the size and changing the terms of some facilities. Specifically, the Board of Governors approved extension through February 1, 2010, of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF), and the Term Securities Lending Facility (TSLF). The expiration date for the Term Asset-Backed Securities Loan Facility (TALF) currently remains set at December 31, 2009. The Term Auction Facility (TAF) does not have a fixed expiration date." The release adds, "The Board extended the authorizations for the AMLF and the CPFF through February 1, 2010. The authorization for the MMIFF, which expires on October 30, 2009, was not extended. Usage of the AMLF has declined considerably as market conditions have improved. Nonetheless, in view of the continued fragility in market conditions, the Board judged it appropriate to extend the authorization for the AMLF. To help ensure that the AMLF is used for its intended purpose of providing a temporary liquidity backstop to money market mutual funds (MMMFs), the Federal Reserve established a redemption threshold whereby a MMMF would have to experience material outflows -- defined as at least 5 percent of net assets in a single day or at least 10 percent of net assets within the prior five business days -- before it can sell asset-backed commercial paper (ABCP) that would be eligible collateral for AMLF loans to depository institutions and bank holding companies. Any eligible ABCP purchased from a MMMF that has experienced redemptions at these thresholds could be pledged to AMLF at any time within the five business days following the date that the threshold level of redemptions was reached. The Board similarly judged that market conditions warranted the extension of the CPFF through February 1 in order to help ensure the access of U.S. businesses to short-term funding. Interest rates posted on the CPFF are at levels that are increasingly unattractive for many borrowers as market conditions improve, and accordingly usage of the CPFF is declining fairly steadily. In these circumstances, the Board judged that modifications to the CPFF were not necessary at this time. Given the overall improvement in market conditions and the continued availability of the AMLF and the CPFF, the Board believed that it was not necessary to extend the authorization for the MMIFF."
