Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF): Definition, Operation, and Impact

In response to the unprecedented challenges of the 2008-2009 financial crisis, the Federal Reserve implemented the Asset-backed Commercial Paper Money Market Fund Liquidity Facility (AMLF). This article explores the AMLF in detail, highlighting its objectives, operational mechanics, and impact on the financial system.

The AMLF was a government-backed lending program established by the Federal Reserve Board to address liquidity strains in the financial system during the height of the 2008-2009 financial crisis. Its primary aim was to provide funding to troubled financial institutions, allowing them to acquire high-quality asset-backed commercial paper from money market mutual funds and prevent potential defaults on investors’ redemptions.

Launched on September 19, 2008, amidst escalating market turmoil triggered by the Lehman Brothers bankruptcy, the AMLF offered collateralized loans to depository institutions and bank holding companies. These loans enabled financial institutions to purchase asset-backed commercial paper from money market funds, thereby bolstering liquidity and stability in the financial markets during a period of heightened uncertainty.

J.P. Morgan Chase and State Street Bank and Trust Company emerged as prominent participants in the AMLF, accounting for over 90% of the program’s lending activity. Notably, the AMLF disbursed $150 billion within its first 10 days of operation and extended a total of $217 billion in loans by its closure on February 1, 2010. The program’s successful execution and full repayment of loans underscored its effectiveness in restoring confidence and resilience to the financial system.

The Federal Reserve invoked Section 13(3) of the Federal Reserve Act to authorize the implementation of the AMLF, granting it the authority to extend credit under extraordinary circumstances to entities facing challenges in accessing adequate financing.

Financial institutions seeking participation in the AMLF were required to demonstrate significant outflows, indicative of severe liquidity constraints. J.P. Morgan Chase and State Street Bank and Trust Company emerged as primary borrowers under the program, reflecting the concentration of borrowing activity among major financial institutions.

The AMLF concluded its operations on February 1, 2010, having fulfilled its mandate of stabilizing money market funds and enhancing liquidity in the asset-backed commercial paper market. Its successful execution and full repayment of loans demonstrated its pivotal role in mitigating the adverse effects of the financial crisis and restoring confidence in the financial system.

The primary objective of the AMLF was to provide funding to troubled financial institutions, enabling them to purchase asset-backed commercial paper from money market mutual funds and prevent defaults on investors’ redemptions.

J.P. Morgan Chase and State Street Bank and Trust Company were responsible for over 90% of the lending activity under the AMLF.

Yes, the AMLF successfully stabilized money market funds, prevented defaults on investor redemptions, and restored confidence in the financial system.