Up to $2.3 trillion in loans to support the economy – including $600 billion to purchase loans to small- and mid-sized businesses – was announced Thursday by the Federal Reserve as a result of “additional actions.”
The Fed said the additional funding will “assist household and employers of all sizes” and “bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.”
A key part of the Fed’s latest activities is the Main Street Lending Program (MSLP), which will also include $75 billion in equity from the Treasury Department. That funding was made possible through the enactment March 27 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Fed said.
According to the Fed, the MSLP is aimed at providing support for the small- and mid-sized businesses that “were in good financial standing” before the coronavirus crisis began by offering four-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. Principal and interest payments on the loans, the Fed said, would be deferred for one year.
“Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses,” the Fed said in its announcement. “Banks will retain a 5 percent share, selling the remaining 95 percent to the Main Street facility, which will purchase up to $600 billion of loans.”
The central bank said that businesses seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. “Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act,” the Fed said.
Firms that have taken advantage of the PPP may also take out Main Street loans, the agency said.
“The Federal Reserve and the Treasury recognize that businesses vary widely in their financing needs, particularly at this time, and, as the program is being finalized, will continue to seek input from lenders, borrowers, and other stakeholders to make sure the program supports the economy as effectively and efficiently as possible while also safeguarding taxpayer funds,” the Fed said.
Comments may be sent to the feedback form until April 16, the agency said.
In addition to the MSLP (and the Paycheck Protection Program [PPP] Loan Facility, announced through an interim final rule also released Thursday), the Fed said that it is:
- Expanding the size and scope of the previously announced Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury, according to the Fed. The agency noted that it will broaden the range of assets that are eligible collateral for TALF; those will now include triple-A rated tranches of both outstanding commercial mortgage-backed securities and newly issued collateralized loan obligations. “The size of the facility will remain $100 billion, and TALF will continue to support the issuance of asset-backed securities that fund a wide range of lending, including student loans, auto loans, and credit card loans,” the Fed said.
- Establishing a Municipal Liquidity Facility (MLF) intended to offer up to $500 billion in lending to states and municipalities. The Fed said Treasury will provide $35 billion of credit protection to the Federal Reserve for the MLF using funds appropriated by the CARES Act. “The Municipal Liquidity Facility will help state and local governments better manage cash flow pressures in order to continue to serve households and businesses in their communities,” the Fed said. “The facility will purchase up to $500 billion of short term notes directly from U.S. states (including the District of Columbia), U.S. counties with a population of at least two million residents, and U.S. cities with a population of at least one million residents. Eligible state-level issuers may use the proceeds to support additional counties and cities. In addition to the actions described above, the Federal Reserve will continue to closely monitor conditions in the primary and secondary markets for municipal securities and will evaluate whether additional measures are needed to support the flow of credit and liquidity to state and local governments.”