What is the 'Commercial Paper Funding Facility - CPFF'

The Commercial Paper Funding Facility (CPFF) is an institution created by the Federal Reserve Bank of New York on October 27, 2008, as a result of the credit crunch faced by financial intermediaries in the commercial paper market.

BREAKING DOWN 'Commercial Paper Funding Facility - CPFF'

The Commercial Paper Funding Facility (CPFF) provided liquidity to U.S. issuers of commercial paper registered with the CPFF. This can also be viewed as providing a liquidity backstop to these registered commercial paper issuers.

This was made possible through a special purpose vehicle (SPV) that is funded by the Federal Reserve Bank of New York. An SPV is bankruptcy-remote entity, meaning a specific, isolated part of a corporate group whose possible bankruptcy would have as little impact as possible on the greater corporate entity. This corporate strategy is used as a way to isolate or secure assets, and is often recorded off the balance sheet.

U.S. issuers of commercial paper were required to register for a fee at least two business days prior to using the CPFF's SPV. At time of registration, the New York Fed determined the maximum value of commercial paper the issuer can sell to the SPV.

The CPFF first went into operation in October 2008. The Federal Reserve Bank of New York closed the CPFF in February 2010.

Goal and Purpose of the Commercial Paper Funding Facility

The Federal Reserve’s main goal in creating the CPFF was to provide U.S. issuers of commercial paper with this liquidity backstop, to boost the liquidity in short-term funding markets. This in turn would enable greater availability and accessibility of credit for businesses and individuals. At the time the CPFF was created, the commercial paper market was experiencing significant strain because investors, including money market mutual funds, were hesitant to purchase commercial paper, especially with longer-dated maturities, given that these investors were already struggling with liquidity pressures. The CPFF intended to improve the liquidity of the commercial paper market.

The CPFF served as a platform through which the Federal Reserve Bank of New York could finance the purchase of highly-rated commercial paper, both unsecured and asset-backed. These purchases would be made from eligible issuers vie eligible primary dealers.

The CPFF allowed financial intermediaries to approve loans for individual clients and businesses. The SPV used by the CPFF purchases and holds three-month unsecured commercial paper and asset-backed commercial paper at a discounted rate until maturity. The Federal Reserve Bank of New York was repaid as the maturing commercial paper assets matured.

RELATED TERMS
  1. Commercial Paper Funding Program ...

    A program instituted in October of 2008 that created the Commercial ...
  2. Bad Paper

    Bad paper refers to unsecured short-term fixed income debt with ...
  3. Asset-Backed Commercial Paper - ...

    An asset-backed commercial paper (ABCP) is a short-term investment ...
  4. Paper Profit (Paper Loss)

    A paper profit (or loss) is an unrealized capital gain (or loss) ...
  5. Paper Millionaire

    A paper millionaire is an individual who has achieved a high ...
  6. Story Paper

    A story paper is a security or investment that has very unique ...
Related Articles
  1. Tech

    Is the ICO Whitepaper Dead?

    As more and more cryptocurrencies enter the market, the template of the white paper-the document touting the benefits of a new product-has changed.
  2. Insights

    The Role of Commercial Banks in the Economy

    We interact with commercial banks daily to carry out simple financial tasks. That said, the function and creation of a commercial bank is anything but simple.
  3. Investing

    WestRock Boxes Up an Acquisition (WRK)

    One of the biggest names in cardboard, WestRock Company (NYSE: WRK), is getting a little bigger this week. On Tuesday, the company announced that it has signed a "definitive agreement" to acquire ...
  4. Managing Wealth

    Panama Papers Data Dump: Biggest Surprises

    First of all, there aren't 214,000 entities mentioned--there are more than 320,000.
  5. Insights

    Panama Papers: What Advisors Need to Know

    Here is how clients may be impacted by some of the issues brought to light by the Panama Papers.
  6. Investing

    2016's Most Promising Money Market Funds

    Learn information on some of the most promising money market mutual funds for investors to consider adding to their portfolio in 2016.
  7. Investing

    What's Ahead for U.S. Commercial Banks (WFC, JPM)

    U.S. commercial banks should benefit from higher interest rates, but anxiety about worldwide economic growth has generated active selling pressure.
  8. Investing

    Commercial Lending Falls Amid Growing Risks

    Commercial real estate lending is falling.
RELATED FAQS
  1. What is the banking sector?

    Learn why the banking sector is a vital industry to our economy, what it does to drive the economic growth and understand ... Read Answer >>
  2. Who decides when to print money in the U.S.?

    Learn the U.S. Treasury's Federal Reserve Bank's roles in the process of printing money in the United States. Read Answer >>
  3. How do I calculate a bond's modified duration using Excel?

    Understand the benefits of investing in a money market mutual fund, and learn why investors use this type of account in volatile ... Read Answer >>
Trading Center