Asset-Backed Commercial Paper Money Market Fund (AMLF)
What Was the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF)?
The Asset-Backed Commercial Paper Money Market Fund (AMLF) was a lending program that the Federal Reserve Board made during the level of the 2008-2009 financial crisis to give new funding to U.S. financial institutions. The AMLF gave funding that permitted financial institutions to purchase asset-backed commercial paper from money market mutual funds to prevent default on investors' redemptions.
Understanding the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF)
The Asset-Backed Commercial Paper Money Market Fund (AMLF) started operations on Sept. 19, 2008. Multi week sooner, Lehman Brothers, the fourth-biggest investment bank in the United States, petitioned for financial protection. The collapse of Lehman Brothers caused serious disturbances in short-term credit markets, as redemption demands by investors flooded.
While money markets are regularly viewed as conservative and liquid investments, they momentarily turned out to be very illiquid. Some money market funds put an impermanent freeze on investor redemptions, a rare move that indicated just the way in which seriously the markets were shaken.
In response, the U.S. Federal Reserve announced that it would stretch out collateralized loans to depository institutions and bank holding companies to assist with supporting their purchases of top notch asset-backed commercial paper from money market funds, consequently assisting with keeping those money market funds dissolvable in the midst of the flood in redemptions.
The Federal Reserve's aims with the AMLF were to assist with balancing out surges from money market funds and furthermore to work on the liquidity in the asset-backed commercial paper market, as well as among money markets all the more generally. Doing so would hopefully prevent funds from liquidating further assets, which would flatten asset prices even further and potentially add to the deteriorating of the financial crisis.
History of AMLF
The Federal Reserve had the authority to carry out the AMLF program due to Section 13(3) of the Federal Reserve Act. This section permits the Federal Reserve Board, in unusual and critical conditions, to stretch out credit to people, partnerships, and corporations that are generally unfit to acquire adequate credit facilities.
The AMLF loaned $150 billion throughout the span of its initial 10 days. To take an interest, financial institutions needed to demonstrate that they were encountering serious outpourings. Two banks, J.P. Morgan Chase and State Street Bank and Trust Company, made up over 90% of the AMLF's borrowing.
The AMLF closed on Feb. 1, 2010. Throughout the program's life, it loaned a total of $217 billion. All loans made under the program were reimbursed in full, with interest.
Features
- J.P. Morgan Chase and State Street Bank and Trust Company were responsible for more than 90% of what the AMLF lent out.
- The program lent out $150 billion in the initial 10 days and $217 billion total when it closed on Feb. 1, 2010.
- The Asset-Backed Commercial Paper Money Market Fund (AMLF) was a government program laid out by the U.S. central bank during the most exceedingly terrible of the 2008-2009 financial crisis.
- The program gave funding to troubled financial institutions, permitting them to buy top notch asset-backed commercial paper from money market funds.
- This empowered those money market funds to remain dissolvable and liquid even as investors across the board were cashing out their holdings, in the midst of the fallout from the crisis.
