Fed expands group of firms eligible for emergency lending facilities transactions, services

The group of firms eligible to transact with and provide services in three emergency lending facilities was widened Thursday by the Federal Reserve, which the central bank said would increase its “operational capacity and insight” into the markets served by the facilities.

The three facilities that can now receive, as the Fed said, “a broader range of agents” are the Term Asset-Backed Securities Loan Facility (TALF) and counterparties for the Commercial Paper Funding Facility (CPFF) and Secondary Market Corporate Credit Facility (SMCCF).

The Fed noted that the three lending facilities were created in response to the financial impact of the coronavirus crisis last spring. The lending facilities – established with equity investments by the Treasury Department – are aimed at helping to support the flow of credit to households, businesses and “the broader economy,” the Fed said.

In a list of “frequently asked questions” about the expansion, the New York Federal Reserve Bank said in order for a firm to be eligible for use of the facility it must:

  • Be a U.S. broker-dealer registered with the Securities and Exchange Commission (SEC) and regulated as a member of the Financial Industry Regulatory Authority (FINRA).
  • Have net regulatory capital of at least $1 million and a minimum shareholders’ equity of $1 million, as of the date of submission of the expression of interest form.
  • Be able to demonstrate an active and established business presence in the market segment(s) that that 13(3) facility is targeting.
    • A firm may demonstrate an “active” business presence by having transacted in the facility’s targeted market segment over the last year, preferably at volumes consistent with or above the prior two years. Applicants that have not been active or show a substantial drop-off in activity over the last year may either be rejected or be offered the opportunity to explain the decision to apply if they once had a sizeable presence prior to a year ago.
    • A firm may demonstrate an “established” presence by having been active in the facility’s targeted market segment for at least 3 years.
  • Maintain sound organizational and satisfactory governance practices, financial condition, regulatory condition and internal controls.
  • Be able to demonstrate good faith efforts to support equal opportunity and diversity, including promoting the fair inclusion of women, minorities and veterans in the firm’s workforce, consistent with law.
    • “Good faith efforts” means efforts to identify and, if present, remove barriers to minority, women and veteran employment or to expand employment opportunities for minorities, women and veterans within the workforce such as expanding applicant pools through recruiting or advertising.
  • Be willing to carry out the responsibilities associated with the relevant role, including by responding promptly and completely during the course of the application review and in the execution of counterparty duties.

Federal Reserve Board announces expansion of counterparties in the Term Asset-Backed Securities Loan Facility, Secondary Market Corporate Credit Facility, and Commercial Paper Funding Facility

FAQs: 13(3) Facility Counterparty Expansion Program