Government Support of the Short-Term Markets

Abstract

The ongoing credit crunch has paralyzed the international debt capital markets for quite some time, but its tremors could be felt in the short-term debt capital markets as early as August 2007. Recognizing that the health and vitality of the short-term markets is a fundamental cornerstone of liquidity in the debt capital markets generally, both the U.S. and U.K. governments have taken unprecedented steps to help bolster the commercial paper markets. The U.S. government has, through the Federal Reserve and the Department of the Treasury, implemented four short-term market support programs, namely, the ABCP Money Market Mutual Fund Liquidity Facility, the Treasury Temporary Guarantee Program, the Commercial Paper Funding Facility, and the Money Market Investor Funding Facility. The U.K. government promptly followed suit, establishing the Commercial Paper Facility and the Secured Commercial Paper Facility, both administered by the Bank of England. While these efforts have had limited success in “reviving” the shortterm markets, some of them have certainly been helpful in preventing a meltdown of the debt capital markets, which has continued to be a very real and grave risk.