Commercial Paper Funding Facility (CPFF): Meaning, How It Works
CPFF Explained: Fed’s Liquidity Lifeline for Short-Term Credit Markets
The Commercial Paper Funding Facility (CPFF) was a special purpose vehicle (SPV) launched by the Federal Reserve to stabilize the commercial paper market during the COVID-19 crisis. In its March 17, 2020 statement, the Fed emphasized that commercial paper finances everything from auto loans and mortgages to corporate operations making its smooth function essential for families, businesses, and jobs.
Amid pandemic-driven uncertainty, the Fed noted that the market was under “considerable strain.” The CPFF aimed to reduce the risk that eligible issuers would default, restoring confidence and liquidity.
This wasn’t the first time the Fed deployed the CPFF. It was originally created on October 27, 2008, during the global financial crisis, and closed in 2010 after purchasing $738 billion in commercial paper. The 2020 revival targeted similar credit crunch conditions caused by the pandemic.
The program officially expired on March 31, 2021, after fulfilling its emergency mandate.
- Commercial paper is short-term, unsecured debt that businesses use to cover daily operating costs.
- The COVID-19 pandemic triggered severe strain in the commercial paper market, threatening corporate liquidity.
- In response, the Federal Reserve launched the Commercial Paper Funding Facility (CPFF) to inject emergency credit.
- This program revived a similar initiative from the 2008 financial crisis, aimed at easing the credit crunch.
- The CPFF officially expired on March 31, 2021, after stabilizing short-term funding markets.
Key Takeaways
CPFF Deep Dive: Fed’s Short-Term Credit Backstop
The Commercial Paper Funding Facility (CPFF) was a special purpose vehicle (SPV) created by the Federal Reserve to purchase both unsecured and asset-backed commercial paper. Backed by $10 billion in credit protection from the U.S. Treasury’s Exchange Stabilization Fund (ESF), the Fed’s loans to the CPFF were secured by the assets held within the SPV.
Managed by the Federal Reserve Bank of New York (FRBNY), the CPFF targeted commercial paper issued in the U.S., denominated in U.S. dollars, and rated A-1, F-1, or P-1 by a major NRSRO or by two agencies if rated by more than one. Foreign-owned firms with U.S. operations were also eligible.
Holdings from any single issuer were capped at the highest amount of outstanding commercial paper between March 16, 2019 and March 16, 2020. Pricing was set at the three-month overnight index swap (OIS) rate plus 200 basis points, ensuring market-based yields.
Issuers had to pre-register and pay a facility fee of 10 basis points on the maximum amount of paper the CPFF could hold. The program stopped purchasing paper on March 31, 2021, but the New York Fed continues to fund the SPV until all assets mature.
