Asset-Backed Commercial Paper Money Market Fund (AMLF) Explained: $217 Billion Program During 2008-2010 Financial Crisis
Discover the Asset-Backed Commercial Paper Money Market Fund (AMLF), a critical $217 billion Federal Reserve lending program launched during the 2008-2010 financial crisis to stabilize money market funds and financial institutions.
What Is the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF)?
The Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF) was a strategic lending initiative created by the U.S. Federal Reserve amid the 2008-2009 financial crisis. Its primary goal was to inject liquidity into financial institutions, enabling them to purchase asset-backed commercial paper from money market mutual funds. This intervention helped prevent widespread defaults on investor redemptions and stabilized the shaken money market sector.
Key Insights
- AMLF was a government-backed program launched by the Federal Reserve during the peak of the 2008 financial crisis.
- It provided crucial funding to struggling financial institutions, allowing them to acquire high-quality asset-backed commercial paper from money market funds.
- This mechanism helped maintain the solvency and liquidity of money market funds while investors were rapidly withdrawing their investments.
- Major banks such as J.P. Morgan Chase and State Street Bank and Trust Company accounted for over 90% of AMLF loans.
- The facility disbursed $150 billion within its first 10 days and totaled $217 billion by its closure on February 1, 2010.
How AMLF Worked During the Financial Crisis
AMLF began on September 19, 2008, shortly after the collapse of Lehman Brothers, which triggered turmoil in short-term credit markets and a surge in redemption requests from investors. Although money market funds are typically stable and liquid, the crisis caused temporary freezes on redemptions, highlighting the severity of the situation.
To counteract this, the Federal Reserve extended collateralized loans to banks and holding companies, enabling them to buy asset-backed commercial paper from money market funds. This support preserved the liquidity and solvency of these funds amid the investor sell-off.
The Federal Reserve aimed to stabilize money market outflows and improve liquidity in the asset-backed commercial paper market, preventing further asset liquidations that could worsen the financial crisis.
AMLF Program Background and Legacy
The AMLF was authorized under Section 13(3) of the Federal Reserve Act, which allows emergency credit extensions during extraordinary circumstances. Financial institutions had to demonstrate significant outflows to qualify.
J.P. Morgan Chase and State Street Bank dominated the borrowing under AMLF, reflecting their critical role during the crisis. The program ultimately lent $217 billion, all of which was repaid with interest, underscoring its success in stabilizing the financial system during one of its most turbulent periods.
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