Consumables

AFP Urges Fed to Expand Commercial Paper Program

Tuesday 31. March 2009 - Tier 2 Companies Would Benefit from New Opportunities to Enhance Liquidity

Today, in a letter to the Board of Governors of the Federal Reserve, Association for Financial Professionals President and CEO Jim Kaitz requested that the Federal Reserve extend the Commercial Paper Funding Facility (CPFF) to Tier 2 commercial paper issuers. The Tier 2 commercial paper market is approximately $80 billion in size and includes such household names as FedEx, Kraft, Kroger, Safeway, and Time Warner.

“Cash and credit continue to be extremely tight while the Fed continues to restrict CPFF credit to Tier 1 companies. The Fed needs to act quickly and extend credit to Tier 2 companies,” said Kaitz.

The membership of AFP includes more than 16,000 financial executives employed by over 5,000 corporations and other organizations. AFP members represent a broad spectrum of financial disciplines and their organizations are drawn generally from the Fortune 1000 and middle-market companies in a wide variety of industries, including manufacturing, retail, energy, financial services, and technology.

Since the Commercial Paper Funding Facility (CPFF) became operational in October 2008, the program has been successful in enhancing the liquidity of the Tier 1 commercial paper market. By providing a liquidity backstop, the Federal Reserve has provided greater assurance to both issuers and investors that firms will be able to roll over their maturing Tier 1 commercial paper.

To the degree the CPFF is opened to Tier 2 issuers, the demand for bank credit on the part of Tier 2 issuers should decrease. This would increase the ability of banks to lend to other companies and individuals because Tier 2 companies will not have to draw as much on bank lines of credit for capital.