Fifty basis points have been shaved off of the pricing for the Federal Reserve’s Municipal Liquidity Facility (MLF), the agency said late Tuesday, in another move by the Fed to encourage participation by states and local governments as the coronavirus pandemic continues.
The revision will ensure the facility “continues to provide an effective backdrop to assist U.S. states and local governments as they weather the pandemic,” the Fed said in a release. The agency said the revision reduces the interest rate spread on tax-exempt notes for each credit rating category and reduces the amount by which the interest rate for taxable notes is adjusted relative to tax-exempt notes.
The MLF was established by the Fed in April as the growing financial impact of the coronavirus crisis became apparent. Its purpose, the agency said, is to help state and local governments better manage cash flow pressures in order to continue to serve households and businesses in their communities during the coronavirus crisis. It offers up to $500 billion in lending to states and municipalities.
Since then, the Fed has made a number of changes to the program in order to encourage participation by states and local governments. Among the changes: eligibility was expanded to more counties and cities in late April; and even more local government entities were given access to the facility in May, as all U.S. states were given the ability to have at least two cities or counties eligible to directly issue notes to the MLF, regardless of population.