What Was the Asset-Backed Commercial Paper Money Market Fund (AMLF)?

The AMLF was a government program during the 2008-2009 financial crisis. It provided funding to troubled financial institutions, allowing them to buy high-quality commercial paper. This helped keep money market funds stable, even as investors withdrew their holdings. J.P. Morgan Chase and State Street Bank were responsible for over 90% of the loans. The program issued $217 billion, with $150 billion in the first 10 days. It ended on February 1, 2010.

Basics

During the 2008-2009 financial crisis, the Federal Reserve Board established the Asset-Backed Commercial Paper Money Market Fund (AMLF). This lending program aimed to offer new funding to U.S. financial institutions. Its purpose was to enable these institutions to buy asset-backed commercial paper from money market mutual funds. By doing so, the program aimed to prevent default on investors' redemptions.

How Did the AMLF Work?

The AMLF was launched in response to the bankruptcy of Lehman Brothers in September 2008. This measure was taken due to disruptions in short-term credit markets caused by increased investor redemption requests.

To address the situation, the U.S. Federal Reserve announced collateralized loans to depository institutions and bank holding companies. The loans were intended to help these institutions purchase high-quality asset-backed commercial paper from money market funds. The goal was to maintain the solvency of the funds amidst the rising redemptions.

The AMLF aimed to stabilize outflows from money market funds and improve liquidity in the asset-backed commercial paper market and overall money markets. The objective was to prevent further asset liquidation, which could worsen the decline in asset prices and contribute to the deepening financial crisis.

AMLF's Brief History

The AMLF program was established by the Federal Reserve under the authority granted by Section 13(3) of the Federal Reserve Act. Its purpose was to provide credit accommodations to individuals, partnerships, and corporations facing exceptional circumstances in obtaining adequate credit.

The program extended substantial loans during its operation, with J.P. Morgan Chase and State Street Bank and Trust Company being the major borrowers. The AMLF successfully supported these institutions in managing significant outflows. Ultimately, the program concluded its activities with all loans made under it being fully repaid, including the accrued interest.

Conclusion

The Asset-Backed Commercial Paper Money Market Fund played a critical role in stabilizing the money market funds during the 2008-2009 financial crisis. The program provided the necessary funding to troubled financial institutions, enabling them to buy high-quality commercial paper and maintaining the solvency of the funds. The AMLF program successfully ended its activities with all loans made under it being fully repaid, including the accrued interest.