The Fed - Primary Dealer Credit Facility (PDCF)
Primary Dealer Credit Facility (PDCF)
Background
The Federal Reserve established the Primary Dealer Credit Facility (PDCF) in March of 2008 in response to the severe strains in the
triparty repurchase agreement market and the resulting liquidity pressures faced by primary dealers. The triparty repurchase agreement market is a critical, short-term funding market.
Primary dealers are broker-dealers that serve as the trading counterparties for the Federal Reserve's
open market operations, and have a key role in providing liquidity in the market for U.S. Treasury securities. In early March 2008, when strains in financial markets escalated sharply, the PDCF was established to improve the ability of primary dealers to provide financing to participants in securities markets, and to promote the orderly functioning of financial markets more generally.
The PDCF functioned as an overnight loan facility for primary dealers, similar to the way the Federal Reserve's
discount window provides a backup source of funding to
depository institutions. By providing a source of liquidity to primary dealers when funding was not available elsewhere in the market, the program helped to improve financial market conditions more generally.
PDCF credit extended by the Federal Reserve was fully collateralized. Initially, eligible collateral was restricted to
investment-grade securities. In September 2008, the set of eligible collateral was expanded to match closely all of the types of instruments that can be pledged in the triparty repurchase agreement systems of the two major
clearing banks.
The PDCF was created by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, which permitted the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations. The facility was administered by the Federal Reserve Bank of New York, with operational assistance provided by the Federal Reserve Banks of Atlanta and Chicago.
The Board of Governors authorized the Federal Reserve Bank of New York to provide liquidity support for certain securities subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch on September 21, 2008, and for Citigroup's London-based broker-dealer subsidiary on November 23, 2008, in each case under Section 13(3) of the Federal Reserve Act. Credit extended under these authorities was on terms similar to that of the PDCF, and is therefore included in this data. Entities that received support under these authorities are identified with "London" appended to the borrower name.
The facility was announced on March 16, 2008, and was closed on February 1, 2010. All loans extended under this facility were repaid in full, with interest, in accordance with the terms of the facility.