MNI POLICY: Fed To Start Primary Dealer Credit Facility

--Long List of Securities Eligible As Collateral

By Evan Ryser

     WASHINGTON (MNI) - The Federal Reserve acted again Tuesday night to

re-establish an emergency lending facility with the biggest Wall Street dealers,

winning Treasury authority to accept a wide range of collateral beyond

government securities.

     The Primary Dealer Credit Facility, originally established in 2008, will

open March 20 and seek to alleviate strains in funding markets by offering

90-day loans at the primary credit rate currently set at 0.25%. It will offer

overnight and term funding with maturities up to 90 days and will be in place

for at least six months.

     "The facility will allow primary dealers to support smooth market

functioning and facilitate the availability of credit to businesses and

households," the Fed said in a statement released at 6pm in Washington.

     An emergency facility requiring approval from the Treasury Department,

Secretary Steven Mnuchin said in a statement: "The establishment of a PDCF will

help address illiquidity, mitigate disruptions in funding markets, support

smooth market functioning and help facilitate the availability of credit to

American workers and businesses."

     The Fed's term sheet listed as eligible collateral:

*All collateral eligible for pledge in open market operations

*Investment grade corporate debt securities, 

*International agency securities

*Commercial paper

*Municipal securities

*Mortgage-backed securities, and asset-backed securities

*Equity securities

     While foreign-currency securities are excluded, the Fed said other

collateral may become eligible upon further analysis.

     The Fed Tuesday morning announced a bank-crisis era emergency commercial

paper funding facility to prop up dysfunctional financial markets, and said it

will be doing USD 1 trillion a day in overnight repo operations this week.

     Fed Chair Jerome Powell briefed Speaker Nancy Pelosi for 25 minutes Tuesday

afternoon to discuss the emergency measures. Pelosi also urged Powell to explore

ways to use the Fed's authority to assist the most affected state and local

governments, according to a senior Democratic aide.

     The Fed on Sunday said it would do whatever it takes to restore normal

trading after seeing signs of distress in the bedrock Treasury market, and

flushing the system with cash is the main tool following a 100bp rate cut to

around zero that day. Powell said he wasn't inclined to use negative interest

rates.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

[TOPICS: MMUFE$,M$U$$$,MC$$$$,MT$$$$,M$$CR$,M$$FI$,MGU$$$,MN$MM$]