WASHINGTON — The Federal Reserve Tuesday announced that it's creating a new program to backstop issuers of commercial paper, something it said the Treasury Department finds necessary to prevent "substantial disruptions" to the economy.
With money market mutual funds and other investors increasingly reluctant to purchase commercial paper, the Fed announced the creation of the "Commercial Paper Funding Facility" to make way for purchases of three-month unsecured and asset-backed commercial paper directly from eligible issuers.
The Fed said it will provide financing for the facility through a special unit or "special purpose vehicle."
The central bank said the Treasury Department views the new facility as necessary "to prevent substantial disruptions to the financial markets and the economy."
The Treasury will make a special deposit at the Federal Reserve Bank of New York in support of the program.
"By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market," the Fed said.