Fed shores up money market mutual funds, opens swap arrangements with more central banks around world

Two more actions to ameliorate the financial impact of the coronavirus crisis – one to establish temporary U.S. dollar liquidity arrangements with central banks, and the other to shore up money market mutual funds with a liquidity facility – were taken by the Federal Reserve late Wednesday evening and early Thursday morning.

Wednesday, the Fed announced a Money Market Mutual Fund Liquidity Facility (MMLF), established through the Boston Federal Reserve Bank, to make loans available to eligible financial institutions secured by high-quality assets purchased from money market mutual funds by the institutions.

The U.S. Treasury is providing $10 billion of credit protection to the Federal Reserve in connection with the facility.

The Fed said the MMLF program will purchase a broader range of assets, but its structure is similar to the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, or AMLF, that operated in the wake of the previous financial crisis, from late 2008 to early 2010.

“Money market funds are common investment tools for families, businesses, and a range of companies,” the Fed said in its announcement. “The MMLF will assist money market funds in meeting demands for redemptions by households and other investors, enhancing overall market functioning and credit provision to the broader economy.”

Thursday morning, the Fed announced the establishment of “swap lines” (temporary U.S. dollar liquidity arrangements) with up to nine central banks of other nations.

The arrangements, like those already established between the Federal Reserve and other central banks, the Fed said, are designed to help lessen strains in global U.S. dollar funding markets, “thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad.”

The central banks participating include: the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank (Denmark), the Bank of Korea, the Banco de Mexico, the Norges Bank (Norway), the Reserve Bank of New Zealand, the Monetary Authority of Singapore, and the Sveriges Riksbank (Sweden).

The Fed said the new facilities will support the provision of U.S. dollar liquidity in amounts up to $60 billion each for the central banks of Australia, Brazil, Korea, Mexico, Singapore and Sweden. Amounts up to $30 billion each will be provided for the central banks of Denmark, Norway, and New Zealand.

The Fed said the arrangements will be in place for six months.

“The Federal Reserve also has standing U.S. dollar liquidity swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank,” the Fed said.

Federal Reserve announces the establishment of temporary U.S. dollar liquidity arrangements with other central banks

Federal Reserve Board broadens program of support for the flow of credit to households and businesses by establishing a Money Market Mutual Fund Liquidity Facility (MMLF)