BREAKING: Fed widens eligible assets for use as collateral against term borrowing by primary dealers.

IN SHORT: For those of you who remember the alphabet soup of financing programs introduced during the financial crisis, here’s another one that was re-released today following the CPFF (essentially a “corporate IOU” rollover program.)

The Federal Reserve Board announced that it will establish a Primary Dealer Credit Facility (PDCF). The facility will allow primary dealers to “support smooth market functioning & facilitate the availability of credit to businesses & households.”

DETAILS:

• The PDCF will offer overnight & term funding with maturities up to 90 days & will be available on March 20, 2020.
• It will be in place for at least six months & may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment grade debt securities, including commercial paper and municipal bonds, and a broad range of equity securities.
• The interest rate charged will be the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.

IMPACT:

Lest anyone think the Fed spent all of their bullets when they cut Fed Fund rates to 0-25 bps on Sunday, think again. Whereas the repo funding that has been widely available on a daily and term basis has represented lending against Treasury and agency collateral, the current program will allow banks to use a much broader range of assets held on their balance sheet.