NEW YORK/WASHINGTON: The Federal Reserve is planning to reinstate a facility previously used during the 2007-09 financial crisis to improve liquidity in a key short-term funding market, two sources familiar with the matter told Reuters.
An announcement about the reintroduction of the Commercial Paper Funding Facility (CPFF) could be made as early as Tuesday, the sources said. The move is one of several being taken by the central bank to counter the economic impact of the coronavirus outbreak.
The move will allow the Fed to circumvent banks and get liquidity straight to ailing businesses. It is seen as a key tool as the Fed looks to support smaller firms, one of the sources said.
The CPFF involves the Fed buying commercial paper from issuers directly. The commercial paper market is used by companies for short-term loans and maintaining liquidity in the market is important to ensure companies can get funding.
Liquidity - or the ability for buyers and sellers to easily transact - has dried up in the commercial paper market in recent weeks as the spread of the coronavirus has disrupted credit markets and hit the price of commercial paper.
Companies rely on the market as a source of short-term cash for payrolls, inventory and accounts payable as well as unanticipated funding needs.
(Reporting by Matt Scuffham; Editing by Chizu Nomiyama and Bernadette Baum)