Describing its efforts as “extensive new measures to support the economy,” the Federal Reserve early Monday announced at least a half-dozen additional measures to address the “tremendous hardship” caused by the coronavirus pandemic both domestically and abroad.
The Fed said it also “expects to announce soon” the creation of a so-called “Main Street Business Lending Program” to support lending to small- and medium-sized businesses. The program, the Fed said, will complement efforts by the Small Business Administration (SBA).
“Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate,” the central bank said in a statement.
The actions the Fed announced include:
- Purchase of Treasury securities and agency mortgage-backed securities in “the amounts needed to support smooth market functioning and effective transmission of monetary policy.” That includes purchases of agency commercial mortgage-backed securities, the Fed said. The agency noted it had previously announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities.
- An additional $30 billion from the Treasury Department to support new programs that provide new financing of up to $300 billion to employers, consumers and businesses. The additional Treasury funding will be provided through the Exchange Stabilization Fund (ESF).
- Creation of two facilities to support credit to large employers: the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance, and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.
- Establishment of yet a third facility (the Term Asset-Backed Securities Loan Facility [TALF]) to enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.
- Expansion of the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.
- Enlargement of the Commercial Paper Funding Facility (CPFF) to include high quality, tax-exempt commercial paper as eligible securities. The pricing of the facility has been reduced as well, the Fed said.
According to the Fed, the PMCCF will allow companies access to credit. It will be open to investment grade companies and will provide bridge financing of four years, the agency said. “Borrowers may elect to defer interest and principal payments during the first six months of the loan, extendable at the Federal Reserve’s discretion, in order to have additional cash on hand that can be used to pay employees and suppliers,” the agency said. The Fed said it will finance a special purpose vehicle (SPV) to make loans from the PMCCF to companies.
The SMCCF, the Fed said, will make secondary market purchases of corporate bonds issued by investment grade U.S. companies and U.S.-listed, exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds.
The TALF, the agency said, would allow the Federal Reserve to lend on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. “The Federal Reserve will lend an amount equal to the market value of the ABS less a haircut and will be secured at all times by the ABS,” the Fed said.