Yesterday, on March 18, 2020, the Board of Governors of the Federal Reserve System (“Board”) announced the creation of a Money Market Mutual Fund Liquidity Facility (“MMLF”) to provide liquidity support to money market mutual funds (“MMMFs”) by facilitating their sale of certain assets in order to meet redemption requests. Under the MMLF, the Federal Reserve Bank of Boston (“FRBB”) will provide secured, non-recourse advances to financial institutions to finance their purchase of certain higher-quality assets from MMMFs. In connection with the creation of the MMLF, the Board, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation issued an interim final rule designed to neutralize the effect of transactions with the MMLF on participating financial institutions’ risk-based and leverage capital ratios. These steps should have the effect of both supporting the liquidity of the underlying assets that serve as eligible collateral under the MMLF and limiting fire-sale losses at MMMFs should they need to liquidate assets to meet redemption requests.
Click here to read Covington’s client alert discussing the MMLF.