New York Fed Will Take Asset-Backed Commercial Paper As Collateral
The Federal Reserve Bank of New York said Sunday that it will allow banks to use asset-backed commercial paper as collateral under its new discount window rules.
The new standard could allow banks to use a broader range of collateral and may encourage them to take advantage of the discount window more quickly.
"We are comfortable taking investment-quality asset-backed commercial paper for which the pledging bank is the liquidity
provider," New York Fed spokesman Calvin Mitchell said in a statement. "This is a clarification of something that has become, over time, accepted practice at the Federal Reserve Bank of New York."
Analysts found the move to be an enouraging step toward stabilizing the market, which has faltered in the past month, forcing the Federal Reserve to cut its discount window rate half a point.
"This strikes us as a very big deal," Lou Crandall, chief economist at Wrightson-ICAP LLC, told the Wall Street Journal.
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