The Federal Reserve System (the “Fed”) is the central bank of the United States and primarily interacts with banks and financial institutions to conduct monetary policy and promote the stability of the U.S. financial system. The Fed has taken a variety of actions to help minimize the adverse effects of the COVID-19 pandemic.
Set forth below are highlights of many, but not all, of the Fed’s COVID-19 related actions. A complete listing of all of the Fed’s COVID-19 related actions can be found here: https://www.federalreserve.gov/covid-19.htm
MARCH 27, 2020
Congress passed the Coronavirus Aid, Relief, and Economic Stimulus Act (the “CARES Act”) and made available not more than the sum of $454,000,000,000 plus any amounts available under paragraphs 4003 (b)(1), (2), and (3) that are not used as provided under those paragraphs to make loans and loan guarantees to, and other investments in, programs or facilities established by the Board of Governors of the Federal Reserve System for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, states, or municipalities by—
(A) purchasing obligations or other interests directly from issuers of such obligations or other interests;
(B) purchasing obligations or other interests in secondary markets or otherwise; or
(C) making loans, including loans or other advances secured by collateral.
MARCH 23, 2020
The Fed announced a variety of new actions including:
- Continued purchase of Treasury securities and mortgage backed securities and the addition of purchasing agency commercial mortgage-backed securities.
- Establishment of the Primary Market Corporate Credit Facility (the “PMCCF”) for new bond and loan issuance for investment grade companies – see term sheet here: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200323b1.pdf.
- Establishment of the Secondary Market Corporate Credit Facility (the “SMCCF”) for secondary market corporate bond purchases issued by investment grade companies and U.S. listed exchanged traded funds – see term sheet here: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200323b2.pdf.
- Establishment of the Term Asset-Backed Securities Loan Facility (the “TALF”) for loans to be made by the Fed to holders of certain AAA-rated asset backed securities backed by newly and recently originated consumer and small business loans. See term sheet here: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200323b3.pdf.
- Indication that the Fed “expects” to announce the establishment of a new Main Street Business Lending Program to “support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA.” The CARES Act (discussed below) also references the establishment by the Board of Governors of the Federal Reserve System of a “Main Street Lending Program or other similar program that supports lending to small and mid-sized businesses.”
MARCH 19, 2020
The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a joint statement encouraging financial institutions to work with affected customers and communities, particularly those that are low- and moderate-income, specifically identifying actions such as waving certain fees such as ATM fees, overdraft fees, and late fees, and activities that help to revitalize or stabilize low- or moderate-income geographies as well as distressed or underserved nonmetropolitan middle-income geographies, and that support community services targeted to low- or moderate-income individuals such as certain types of loans and investments. For more on this joint statement click here: https://www.federalreserve.gov/supervisionreg/caletters/CA%2020-4%20Attachment.pdf
MARCH 18, 2020
The Fed announced that it would establish a Money Market Mutual Fund Liquidity Facility, or MMLF, that will assist money market funds in meeting demands for redemptions by households and other investors, enhancing overall market functioning and credit provision to the broader economy. The MMLF program is structured similarly to the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, or AMLF, that operated from late 2008 to early 2010. For more on this announcement click here: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200318a.htm
MARCH 17, 2020
The Fed announced the establishment of a Commercial Paper Funding Facility (CPFF). Commercial paper markets finance a wide range of activities such as funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies. The CPFF was created to provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase unsecured and asset-backed commercial paper rated A1/P1 (as of March 17, 2020) directly from eligible companies. The Fed noted that “[t]he commercial paper market has been under considerable strain in recent days as businesses and households face greater uncertainty in light of the coronavirus outbreak. By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. An improved commercial paper market will enhance the ability of businesses to maintain employment and investment as the nation deals with the coronavirus outbreak.” https://www.federalreserve.gov/newsevents/pressreleases/monetary20200317a.htm.
MARCH 15, 2020
The Fed announced a variety of actions to support the flow of credit to households and businesses, including (1) lowering its primary credit rate (the rate that depository institutions pay the Fed on certain borrowed funds) by 150 basis points (1.50%) to 0.25%, (2) permitting depository institutions to borrow from the Fed for short-term periods as long as 90 days, (3) encouraging depository institutions to utilize intraday credit extensions from Reserve Banks and to use their capital and liquidity buffers to lend, and (4) effective March 26, 2020, reducing depository institutions’ reserve requirements to support lending to households and business. For more on this announcement click here: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm.
MARCH 15, 2020
The Fed announced a Coordinated Central Bank Action among The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements by lowering the pricing on the standing U.S. dollar liquidity swap arrangements by 25 basis points. For more on this announcement click here: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315c.htm.
MARCH 03, 2020
In one of its earliest announcements directly addressing “the coronavirus” (as it was still referred to on March 3, 2020), the Fed issued a statement advising that the coronavirus posed “evolving risks” to U.S. economic activity, and in light of such risks, the Federal Open Market Committee (the “FOMC”) lowered the target range for the federal funds rate by 0.5%, to 1.25%. For more on this announcement, click here: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm.