The Ultimate Credit Card

The U.S. Federal Reserve announced that it will create a special Commercial Paper Funding Facility (CPFF) to purchase three-month unsecured Commercial Paper directly from eligible issuers through a Special Purpose Vehicle (SPV) backed by the Treasury Department.

This Commercial Paper backstop represents the first time the Fed has ventured into unsecured funding activities.

The total Commercial Paper market is roughly $1.6 trillion, of which credit card and auto loans represent approximately $724 billion.

With this policy the Fed is effectively issuing credit cards to credit card issuers. The key benefit being that this is the first action the Fed has taken directed specifically at Main Street versus Wall Street. The principle detriment being that the non-secured nature of the instruments could result in more defaults and potentially capitulation.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s