Alert February 03, 2009

Update on FRB Liquidity Programs

FRB Extends Liquidity Programs

The FRB extended through October 30, 2009, its existing liquidity programs that were scheduled to expire on April 30, 2009.  The FRB approved the extension through October 30, 2009 of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (the “ABCP Facility”), the Commercial Paper Funding Facility, the Money Market Investor Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility (the “TSLF”).  The Federal Open Market Committee (“FOMC”) also took action to extend the TSLF, which is established under the joint authority of the FRB and the FOMC.

FRB Adopts Final Rules to Extend Exemptions Relating to the ABCP Facility

The FRB adopted two final rules pertaining to its the ABCP Facility, a program that was intended to assist money market funds in obtaining liquidity to meet redemptions.  The two final rules are similar to the interim regulatory exemptions adopted by the FRB in September 2008 at the time the FRB created the ABCP Facility.  See the September 23, 2008 Alert.  The interim rules provided exemptions from (a) the FRB’s risk-based capital rules for bank holding companies and state member banks in Regulation W, and (b) restrictions on and requirements for transactions between banks and bank affiliates in Sections 23A and 23B of the Federal Reserve Act.  As noted above, since the FRB adopted the interim rules, the availability of the ABCP Facility has been extended from its original expiration date of January 31, 2009 to October 30, 2009.  The final rules principally extend the exemptions provided in the interim rules through the ABCP Facility’s new expiration date.

FRB Adopts Final Rules to Extend Exemption Relating to Certain Financing Transactions between Member Banks and Affiliates

The FRB adopted a final rule to extend an interim rule adopted in September 2008 that provided a temporary exemption from the limits in Section 23A of the Federal Reserve Act and the FRB’s Regulation W to permit an affiliate of a member bank (such as a broker-dealer) to obtain financing, if needed, from the member bank for securities or other assets that the affiliate ordinarily would have financed through the tri-party repurchase agreement market.  The temporary exception provided is subject to various safety and soundness conditions.  The final rule is identical to the interim rule, except that it extends the expiration date of the exemption from January 30, 2009 to October 30, 2009.  The interim rule was discussed in the September 16, 2008 Alert.