How well do you know the Fed’s arsenal against the pandemic?

  1. It lowered its target interest rate by a full percentage point nearly to zero, followed by a 50 bps cut on 3 March. The Fed rate is considered as a basis for fixing short-term and long term rates which will reduce the cost of borrowing on different types of loans like mortgages, home equity loans, auto loans and other loans.
  2. Initially, the Fed said it will purchase at least USD700bn in Treasuries and mortgage-backed securities in the coming months. But, it expanded the purchases to other money market instruments on 23 March to enable uninterrupted credit flow in the economy.
  3. To keep up the credit market functioning even during crisis time, the Fed has come up with Primary Dealer credit Facility (PDCF) program which offers reduced interest rate loans for a period up to 90 days to 24 financial organizations with large capital base.
  4. To ease liquidation of money market instruments like commercial paper and treasury securities for investors, the Fed has re-launched them program called Money Market Mutual Fund Liquidity Facility (MMLF). This program aims to lend the banks against collateral they purchase from the primary money market funds. The scope of REPO operations are also expanded considerably.
  5. It is encouraging banks to borrow from its discount window, where it extends credit to banks backed by a wide range of collateral, by reducing the penalty banks have to pay above market rates and extending the maturity of the loans to 90 days.
  6. To increase public lending during crisis period, the Fed is temporarily relaxing on regulatory requirements for both largest and community banks. It also reduced the reserve requirements for thousands of banks to zero, effective from 26 March.
  7. The Fed is directly lending to high rated US corporations. It is establishing new programs to provide up to USD300bn in new financing to support the flow of credit to employers, consumers, and businesses. The Department of the Treasury, using the Exchange Stabilization Fund (ESF), will provide USD30bn in equity to these facilities.
  8. The Fed buys commercial paper directly there by lending to corporations for up to three months at a rate higher than overnight lending rates through Commercial Paper Funding Facility (CPFF) program. This step will ensure maintaining the employment and investment nationwide.
  9. The Fed and five major foreign central banks cut pricing on their swap lines to make it easier to provide dollars to financial institutions around the world that are facing stress in credit markets.
  10. The Main Street program will help the small and medium sized business by lending up to USD600bn in four years loans.
  11. The Fed will support consumers, households and small businesses through Term Asset-Backed Securities Loan Facility (TALF) by lending new collateral loans up to USD100bn.
  12. The Fed has initiated direct lending to state and municipal government by purchasing up to USD500bn of investment grade notes maturing within maximum of 3 years period.

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Acuity Knowledge Partners

Acuity Knowledge Partners

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/