The Primary Dealer Credit Facility (PDCF) is a loan facility that will provide credit to primary dealers in exchange for a broad range of collateral for term funding with maturities up to 90 days. The PDCF is intended to support the credit needs of American households and businesses by fostering the functioning of financial markets more generally and to expand the ability of primary dealers to gain access to term funding.
There are several differences between the facilities. Most notably, the recently announced PDCF offers term funding for up to 90 days, while the facility in operation between 2008 and 2010 offered only overnight loans.
Eligible participants include the primary dealers. A list of the primary dealers is available here.
PDCF loans will settle on the same business day and will mature up to 90 days after settlement. The rate paid on the loan (regardless of the duration of the loan) will be the same as the primary credit rate at the Federal Reserve Bank of New York in effect at the time the loan is made. Click here for the current primary credit rate.
Yes. A primary dealer that wishes to prepay should submit early termination instructions through the Bank of New York Mellon’s tri-party system by 12:00 PM, which will be reviewed and processed by the Federal Reserve Bank of New York.
Eligible collateral includes a broad range of investment grade debt securities, including commercial paper and municipal bonds, and a broad range of equity securities. See this collateral schedule, as well as the Term Sheet for Primary Dealer Credit Facility for additional detail.
Commercial paper must be rated investment grade, i.e. rated A2/P2/F2 or better by a major nationally recognized statistical rating organization (NRSRO). If rated by multiple NRSROs, the lowest rating will be used.
Should commercial paper collateralizing a term PDCF loan no longer meet the criteria described above (e.g., an NRSRO downgrade below A2/P2/F2 occurs), the primary dealer will need to replace the security with collateral that meets all applicable eligibility criteria to maintain full collateralization of the loan, or initiate an early termination of the loan. This is consistent with the treatment of other eligible collateral for a PDCF term loan that later fails to meet all applicable eligibility criteria over the life of the loan.
Based on the broad collateral types indicated in the PDCF term sheet, a more detailed collateral schedule was provided by the Federal Reserve Bank of New York to the Bank of New York Mellon in keeping with the triparty setup process. This information was also shared with each primary dealer as a counterparty to the PDCF. Primary dealers can engage the Bank of New York Mellon should questions of additional granularity and eligibility arise.
The collateral will be subject to daily repricing by the Bank of New York Mellon according to a schedule designed to be similar to the margin schedule for lending by the Discount Window, to the extent possible. In the event the loan becomes under-collateralized, the borrower will need to pledge additional collateral to cover the shortfall or prepay the loan. The collateral schedule may be adjusted as conditions warrant and upon further analysis.
No. Obligations issued by the borrower or its affiliates are not accepted.
Primary dealers should initiate transactions with their clearing bank for PDCF funds no later than 2:00 p.m. ET on business days. This time is subject to change.
Yes, normal tri-party fees will apply.
A primary dealer will be allowed to borrow up to the margin-adjusted collateral it can deliver to the Federal Reserve’s account at the clearing bank.
The loans will be made available to a primary dealer’s clearing bank following the acknowledgment by the clearing bank that sufficient collateral has been placed in the Federal Reserve Bank of New York’s tri-party account at the clearing bank. This will take place around 5:00 p.m. ET each day.
If day ninety of a 90-day loan falls on a weekend or holiday, loans through the PDCF will mature on the next business day.
Each primary dealer should contact their clearing bank directly.
Yes, loans to primary dealers made under the PDCF are made with recourse beyond the collateral to the primary dealer entity itself.
This facility differs from discount window lending to depository institutions in a number of ways. The PDCF is available to primary dealers while the discount window is available only to depository institutions. Also, the discount window does not accept equity securities as collateral for loans. In addition, credit under this facility is extended in the form of a repurchase agreement transaction.
PDCF loans are made under Section 13(3) of the Federal Reserve Act.
Information on PDCF loans that includes individual borrower detail will be disclosed in accordance with Section 13(3) of the Federal Reserve Act.
The Liquidity Coverage Ratio (LCR) rule does not require a firm to recognize an outflow for a secured funding transaction that matures more than 30 calendar days from the calculation date. As such, primary dealers that are affiliates of entities subject to the LCR rule would not recognize an outflow for so long as the maturity of the loan is not within 30 calendar days of a firm’s calculation date. As the remaining maturity of the loan declines, the primary dealer may choose to pre-pay the loan and request a new loan up to 90 days.
The PDCF will remain available to primary dealers for at least six months, or longer if conditions warrant.