The Federal Reserve has announced its most aggressive intervention to date, which includes an unlimited commitment to buy Treasury bonds, purchase corporate and municipal debt, and the establishment of a new loan program for small and medium-sized businesses. This is a historic effort to defend the U.S. economy from disruptions related to the coronavirus. The Federal Reserve said, “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 Federal Reserve’s role is guided by its mandate from Congress to promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system.” The Federal Reserve sees these actions as necessary measures under their mandate.
The Federal Reserve’s actions include:
- Support for critical market functioning – The purchase of Treasury securities and agency mortgage-backed securities at levels needed to support smooth market functioning and effective transmission of monetary policy. In previous weeks, the Federal Reserve announced the purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. Under today’s announcement, the Federal Reserve will now include the purchases of agency commercial mortgage-backed securities.
- Support for the flow of credit to employers, consumers, and businesses – Establishes new programs that will provide up to $300 billion in new financing.
- Support credit to large employers – Establishes two new credit facilities to promote new bond and loan issuance, and provides liquidity for outstanding corporate bonds.
- Support the flow of credit to consumers and businesses – Establishes the Term Asset-Backed Securities Loan Facility (TALF) to enable the issuance of asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.
- Support the flow of credit to municipalities – Widens the range of securities purchased by the federal government, including municipal variable rate demand notes, tax-exempt commercial paper, and bank certificates of deposit.
As part of the newly announced programs that will provide up to $300 billion in new financing, the Federal Reserve will establish Main Street Business Lending Program to support lending to eligible small-and-medium-sized businesses. This program is meant to complement the efforts of the SBA. The Main Street Business Lending Program will allow companies access to credit, enabling them to better maintain business operations during the period of dislocations related to the pandemic. This facility is open to investment-grade companies and will provide bridge financing of four years. Borrowers may elect to defer interest and principal payments during the first six months of the loan, and this deferral is extendable at the Federal Reserve’s discretion. The Federal Reserve expects to announce more details on the establishment of this program soon.
CRI is continuing to monitor the establishment of the Main Street Business Lending Program, and will provide updates as they are announced. Reach out to your CRI advisor if you have questions regarding how this program could help your business.