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, April 8, 2020 - Federal Reserve Bank of Richmond

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Home / Publications / Research / Coronavirus

Economic Impact of COVID-19
April 8, 2020

COVID-19: The Fed’s Response So Far
Article by: Christy Cleare

The coronavirus and its associated illness COVID-19 have made their way
around the world with unrelenting efficiency. As localities enact "stay-athome" orders and other restrictions, the contraction in economic activity
has hit small businesses and low-income, low-wealth communities the
To keep credit flowing and combat the liquidity pressures caused by the
pandemic, the Federal Reserve has moved swiftly, revisiting the actions
taken during the 2008 financial crisis and more. In addition to cutting
interest rates to zero, the Fed has enacted six lending facilities to help
ensure that financial markets are functioning and cash continues to be
available to support the increased credit needs of businesses and
households. Taken together, the programs are intended to inhibit the
rapidly growing health crisis from morphing into a financial crisis.
To assist with the continued flow of short-term credit to businesses, on
March 17 the Fed established a Commercial Paper Funding Facility (CPFF)
to provide a backstop for the $1 trillion commercial paper market.
Commercial paper is short-term debt issued by banks, manufacturers,
and other firms to finance things like payrolls and inventories. The CPFF
will help business continue to borrow and finance their operations during
the crisis.
Also on March 17, the Fed established the Primary Dealer Credit Facility
(PDCF) to support the smooth functioning of the Treasury market. This
facility provides short-term loans to the 24 large financial institutions,
known as "primary dealers," that buy and sell Treasury securities.
Investors had warned that primary dealers were concerned about serving 4/17/2020

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their traditional role as "middlemen" in markets amid the intense volatility
that had been experienced since late February, when coronavirus cases in
the United States began to climb. The PDCF provides loans to primary
dealers to support liquidity across financial markets. Ultimately, the PDCF
is designed to unclog pipelines that keep credit flowing around the world.
The Fed announced its third emergency credit program, the Money
Market Mutual Fund Liquidity Facility (MMLF), on March 18. (Outflows
from institutional prime funds totaled $53 billion, or 16 percent, of assets
the week of March 14.) Money market funds make up a $3.8 trillion
industry and are common investment tools for families, businesses, and a
range of companies. The MMLF assists money market funds in meeting
demands for redemptions by households and other investors, enhancing
overall market functioning and credit provision to the broader economy.
In order to provide funding to investment-grade companies so they can
continue business operations and pay employees and suppliers, the Fed
established the Primary Market Corporate Credit Facility (PMCCF) and the
Secondary Market Corporate Credit Facility (SMCCF) on March 23. The
PMCCF provides loans for up to four years, and companies may request
deferral of interest and principal payments during the first six months of
the loan. The SMCCF will purchase in the secondary market 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.
Along with the PMCCF and the SMCCF, the Fed initiated the Term AssetBacked Securities Loan Facility (TALF). Under TALF, the Fed will lend to
borrowers that pledge securities backed by newly and recently originated
consumer and small-business loans. The TALF will 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.
On April 9, the Fed announced additional programs to provide up to $2.3
trillion in loans to support the economy, including expanding the size and
scope of the PMCCF, the SMCCF, and TALF. The Fed will also support the
SBA's Paycheck Protection Program by extending credit to eligible
financial institutions that originate PPP loans, taking the loans as collateral
at face value. In addition, the Fed will purchase up to $600 billion in loans
through the Main Street Lending Program to help ensure credit flows for 4/17/2020

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small and mid-sized businesses. Finally, the Fed established a Municipal
Liquidity Facility, which will offer up to $500 billion in lending, to help state
and local governments manage current cash flow stresses.
"Our country's highest priority must be to address this public health crisis,
providing care for the ill and limiting the further spread of the virus," said
Federal Reserve Board Chair Jerome H. Powell when the newest programs
were announced. "The Fed's role is to provide as much relief and stability
as we can during this period of constrained economic activity, and our
actions today will help ensure that the eventual recovery is as vigorous as
(Updated April 9, 2020)
Christy Cleare is Community Affairs Officer at the Federal Reserve Bank of
This article may be photocopied or reprinted in its entirety. Please credit
the authors, source, and the Federal Reserve Bank of Richmond and
include the italicized statement below.
Views expressed in this article are those of the authors and not necessarily
those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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