The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Fixing the money markets is more important than bailing out the banks

The US Federal Reserve is stepping beyond efforts to bolster and support short-term financial markets: it is replacing them.

Its special purpose vehicle to buy three-month commercial paper direct from top-quality issuers may well be used extensively by banks, but it also makes the Fed a direct lender to industrial corporations. That raises the question: if the banks are failing in their function to provide short-term cash loans to the broader economy, then what is the point of them? The logic of the vehicular finance system – whereby banks originated garbage assets and then created spurious structured vehicles to sell them to – is that banks become detached from the real economy. If, as a result, GE now struggles to raise short-term cash to pay suppliers or meet payroll, the Fed should lend directly to the company in recognition that it is a good credit and of value to society...unlike the broken banks.

For now, it is banks that are most at risk from high pricing or non-availability of short-term credit from the commercial paper market. And the price at which the Fed will provide funds to the new SPV, collateralized against the commercial paper it buys, suggests that it will be more attractive to banks. However US Treasury secretary Hank Paulson was quick to spell out that: “I expect this initiative to significantly improve the availability of funding for financial institutions and corporations that depend on the commercial paper market.”

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree