Banking agencies issue rule allowing financial institutions to use new money market liquidity facility

Following up on the creation of a facility to shore up money market mutual funds, the federal banking agencies Thursday released an interim final rule that gives financial institutions the latitude to actually use the tool.

In a joint release, the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, and Office of the Comptroller of the Currency (OCC) said they issued the rule – effective immediately – to ensure financial institutions will be able to “effectively use” the new liquidity facility, the Money Market Mutual Fund Liquidity Facility (MMLF), announced Wednesday. The Fed said the facility was established to “enhance the liquidity and functioning of money markets and to support the economy” in the face of the financial impact of the coronavirus crisis.

The rule, the agencies said, modifies the agencies’ existing capital rules to allow financial institutions to receive credit for their MMLF activities. The Fed called those actions “low risk,” which reflects the fact that institutions would be taking no credit or market risk in association with them.

The change only applies to activities with the MMLF, the agencies said.

Joint Release/Federal Bank Regulatory Agencies Issue Interim Final Rule for Money Market Liquidity Facility

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