Define: Commercial Paper Funding Program

The Commercial Paper Funding Program (CPFP) is a Federal Reserve initiative that aims to provide liquidity support to the commercial paper market during times of financial stress. It allows eligible issuers to sell their commercial paper to a special purpose vehicle (SPV) established by the Federal Reserve.

Eligible issuers for the CPFP include U.S. companies that issue commercial paper and have a significant presence in the United States. This includes both financial and non-financial companies.

Under the CPFP, eligible issuers can sell their commercial paper to the SPV at a discounted rate. The SPV then holds the commercial paper as collateral and provides cash to the issuer. This helps the issuer access much-needed liquidity during times of market stress.

The CPFP accepts three types of commercial paper: asset-backed commercial paper (ABCP), unsecured commercial paper, and asset-backed securities (ABS) issued by a U.S. issuer.

The CPFP was initially established in 2008 during the financial crisis but has been extended multiple times. The program is currently set to expire on March 17, 2022, unless further extensions are announced.

By participating in the CPFP, issuers can access a stable source of funding during times of market stress. This helps them maintain their operations and meet their financial obligations. Additionally, the CPFP provides liquidity to the commercial paper market, which promotes overall market stability.

Yes, there is a limit on the amount of commercial paper an issuer can sell to the SPV. The limit is based on the issuer’s outstanding commercial paper as of March 17, 2020, or the issuer’s average daily outstanding commercial paper over the 12 weeks ending on March 17, 2020, whichever is greater.

The Federal Reserve determines the discount rate for commercial paper sold through the CPFP based on prevailing market conditions and the creditworthiness of the issuer. The discount rate is typically higher than the rate at which high-quality commercial paper is traded in normal market conditions.

Yes, an issuer can participate in the CPFP even if it has already accessed other Federal Reserve liquidity facilities. However, the total amount of funding an issuer can obtain from all Federal Reserve liquidity facilities is subject to certain limits.