- COVID-19 has halted economic activity in many countries. Financial markets have experienced all-time high volatility and continue to be stressed. Lending to the primary dealers by the Federal Reserve is needed to maintain the orderly function of financial markets.
- Section 13(3) of the Federal Reserve Act permits emergency lending to bank and nonbank companies by the Federal Reserve with Treasury approval.
- On March 17, 2020, and Federal Reserve Bank of New York was authorized to lend under the PDCF program. The program begins March 20, 2020 and remains for at least 6-months.
- PDCF is a term loan facility that provides funding to primary dealers for up to 90-days in exchange for a broad range of collateral and is intended to foster the functioning of financial markets more generally. The facility will allow primary dealers to support smooth market functioning and facilitate the availability of credit to businesses and households.
- Collateral eligible for pledge under the PDCF includes
- all collateral eligible for pledge in open market operations (OMOs);
- investment grade corporate debt securities,
- international agency securities,
- commercial paper,
- municipal securities,
- mortgage-backed and asset-backed securities;[1] plus
- equity securities.
Foreign currency-denominated securities and collateral that is not priced by the clearing bank will not be eligible for pledge under the PDCF
1 AAA-rated securities: commercial mortgage-backed securities (CMBS), collateralized loan obligations (CLOs), and collateralized debt obligations (CDOs). Other eligible securities as specified above are accepted if rated investment grade (such that BBB-securities and above). Specifically, investment grade commercial paper rated A1/P1 and A2/P2is accepted
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[1] AAA-rated securities: commercial mortgage-backed securities (CMBS), collateralized loan obligations (CLOs), and collateralized debt obligations (CDOs). Other eligible securities as specified above are accepted if rated investment grade (such that BBB-securities and above). Specifically, investment grade commercial paper rated A1/P1 and A2/P2is accepted