The Federal Reserve Municipal Liquidity Facility (MLF): Where the municipal securities market and fed finally meet

The CARES Act authorized the Municipal Liquidity Facility (MLF) with an explicit purpose of aiding state and local governments with their liquidity needs during the COVID-19 pandemic. Unlike other federal liquidity facilities authorized by the Act that offered short-term financing to certain dealers and institutional investors in municipal securities, the MLF offered direct access to liquidity to eligible state and local governments. In this article we describe the MLF, including its legal arrangements, structural characteristics, and public policy features. We then empirically evaluate the pricing, credit rating, and issuer eligibility requirements of the MLF, in the context of other federal interventions, using difference-in-differences and interrupted time series analysis techniques. Finally, we propose suggestions for the evolution of the MLF and the Federal Reserve's liquidity provision role in response to continued exposure to and recovery from the COVID-19 pandemic.