What Is the Commercial Paper Funding Facility?

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.

Understanding the 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 a 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 the 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.