Primary Dealer Credit Facility (PDCF)

What Is a Primary Dealer Credit Facility?

Primary Dealer Credit Facility (PDCF) was an institution created by the Federal Reserve to provide overnight loans to primary dealers through their clearing banks in exchange for eligible collateral. The PDCF provided loans that settled the same business day and matured the following business day. The initial facility closed in 2010.

A new PDCF was announced by the Fed on March 17, 2020, offering loans with a term of up to 90 days. The new PDCF started on March 20, 2020, and lasted until March 31, 2021."

Key Takeaways

  • Primary dealers are banks or other financial institutions that can trade securities with the government.
  • The Primary Deal Credit Facility gave short-term loans to primary dealer institutions using securities the primary dealers own as collateral.
  • This ensured that primary dealers, a key part of the financial system, have sufficient liquidity.

Understanding the Primary Dealer Credit Facility (PDCF)

The Primary Dealer Credit Facility (PDCF) was established in order to encourage financial markets to function more effectively. Primary dealers borrowed overnight loans from the PDCF through their clearing banks at the primary credit rate offered by the Federal Reserve Bank of New York.

A frequency-based fee was assigned to primary dealers who borrow from the PDCF on more than 45 business days.

Financial Crisis

The facility was one of a number of steps taken by the government to free up credit during the financial crisis. The 2008 financial crisis was the worst economic disaster since the Great Depression of 1929. The crisis was the result of a sequence of events, each with its own trigger and culminating in the near collapse of the banking system. It has been argued that the seeds of the crisis were sown as far back as the 1970s with the Community Development Act, which forced banks to loosen their credit requirements for lower-income minorities, creating a market for subprime mortgages.

The Federal Reserve made loans totaling $8.95 trillion to primary dealers in exchange for a wide range of collateral under the PDCF. Citigroup, Merrill Lynch, and Morgan Stanley each received loans that totaled more than $1 trillion. However, these were overnight loans, which were frequently rolled over into new loans. Some 21,000 transactions with financial companies and foreign central banks were made using the facility.

Other steps taken during the crisis included the TALF and TARP programs. The Asset-Backed Securities Loan Facility (TALF) was created by the U.S. Federal Reserve in Nov. 2008 to boost consumer spending to help jumpstart the economy. This was accomplished through the issuance of asset-backed securities. The collateral for these securities was made up of auto loans, student loans, credit card loans, equipment loans, floor plan loans, insurance premium finance loans, loans guaranteed by the Small Business Administration, residential mortgage servicing advances or commercial mortgage loans. Backing for these loans came from funds provided by the New York Federal Reserve Bank.

The Troubled Asset Relief Program (TARP) was a group of programs created and run by the U.S. Treasury to stabilize the country's financial system, restore economic growth, and mitigate foreclosures in the wake of the 2008 financial crisis. TARP sought to achieve these targets by purchasing troubled companies' assets and equity.

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  1. Federal Reserve. "Federal Reserve Board Announces Establishment of a Primary Dealer Credit Facility (PDCF) to Support the Credit Needs of Households and Businesses." Accessed March 19, 2020.

  2. Federal Reserve. "Federal Reserve Board Announces Extension Through March 31, 2021, for Several of Its Lending Facilities That Were Generally Scheduled to Expire on or Around December 31." Accessed Dec 11, 2020.

  3. Federal Reserve. "Term Sheet for Primary Dealer Credit Facility (PDCF)," Pages 1 and 2. Accessed March 19, 2020.

  4. Federal Reserve. "Federal Reserve Board announces an extension through December 31 of its lending facilities that were scheduled to expire on or around September 30." Accessed July 28, 2020.

  5. CNBC. "Did Fed Really Lend $9 Trillion Under Its Primary Dealer Credit Facility?" Accessed Sept. 17, 2020.

  6. Board of Governors of the Federal Reserve System. "TALF Press Release." Accessed Sept. 17, 2020.

  7. U.S. Department of the Treasury. "TARP Programs." Accessed Sept. 17, 2020.