US Fed launches US$2.3t financing to support economy

Marco Green
April 10, 2020

The Fed has only accessed a portion of that, with about $250 billion still available for programs yet to be determined.

Mnuchin said in a statement on Thursday that the Fed's plan would "support American workers by helping American businesses preserve jobs, sustain operations, and continue to serve their customers".

The Fed has been consistently at the vanguard of USA policy makers responding boldly to the coronavirus crisis.

The Fed has tried to identify "the priority areas where we thought help was needed", said Chairman Powell during an online forum Thursday. "As we identify other areas, we won't hesitate to move".

The Fed first fired its arsenal at funding markets last month to prevent a public-health crisis from morphing into a financial crisis, and it later said it would throw another volley at credit markets that have broken down.

The Fed will create two facilities to encourage banks to lend to midsize businesses, which it defined as those with fewer than 10,000 employees or less than $2.5 billion in revenues a year ago.

The Fed said in a release that besides using the SPV set up by the Treasury to "ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program", the central bank would also directly buy the bonds of states and more populous counties and cities to help them respond to the health crisis. The Municipal Liquidity Facility will be supported by $35 billion of credit protection from the Treasury. The Fed is restricted from lending directly to companies or individuals, but it can use "SPVs" to lend or in this case to purchase loans from banks.

The Main Street program will finance four-year loans to businesses with up to 10,000 employees.

The Small Business Administration's Paycheck Protection Program has struggled with its rollout since its creation on April 3, and the Fed has pledged to backstop the loans in this program.

The Fed, in coordination with the Treasury Department, has now announced a Main Street Lending Facility as one of its linchpin programs in the crisis.

Similar to previously announced liquidity facilities, the Fed and the U.S. Treasury will set up a "special objective vehicle" to purchase securities and assets, with credit protection and equity supported by the $454 billion in money appropriated in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The Fed will also expand its liquidity efforts on corporate credit by increasing the size of its Primary and Secondary Market Corporate Credit Facilities and its Term Asset-Backed Securities Loan Facility.

The Fed will now accept triple-A-rated tranches of existing commercial mortgage-backed securities and newly issued collateralized loan obligations.

Why it matters: The Fed has taken more action amid the coronavirus outbreak than it has in any other financial crisis in US history in an effort to blunt the effects of the resultant economic shutdown.

Other reports by Click Lancashire

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