Fed to provide $2.3 trillion in loan programs

Jerome Powell

The Federal Reserve introduced programs on April 9 to provide up to $2.3 trillion in loans to support households, businesses and state and local governments that offer critical services during the coronavirus pandemic. 

The programs include those that will expand lending to small and midsize businesses and municipalities.

“Our country’s highest priority must be to address the public health crisis, providing care for the ill and limiting further spread of the virus,” said Fed Chair Jerome Powell. “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 possible.”

The $2.3 trillion in lending programs are mainly relying on the Fed’s emergency lending powers only available in unusual circumstances, such as the pandemic. “We are deploying these lending powers to an unprecedented extent, enabled in large part by the financial backing from Congress and the Treasury,” Powell said. “We will continue to use these powers forcefully, proactively and aggressively until we are confident that we are solidly on the road to recovery.”

The actions include:

    • The Paycheck Protection Program Lending Facility will supply liquidity to financial institutions through term financing backed by Paycheck Protection Program loans to small businesses. The PPP Liquidity Facility will extend credit to banks that originate PPP loans, taking the loans as collateral at face value.

 

  • The Main Street Lending Program will support credit flow to small- and mid-sized businesses  with the purchase of up to $600 billion in loans through the Main Street Lending Program. The Treasury Department will provide $75 billion of funding from the CARES Act in equity to the facility.
  • The Primary and Secondary Market Corporate Credit Facilities, and the Term Asset-Backed Securities Loan Facility will support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury.
  • The Municipal Liquidity Facility will help state and local governments manage cash flow stresses by offering up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the facility using funds from the CARES Act.

 

The Main Street Lending Program will offer four-year loans to companies employing up to 10,000 workers or with revenues less than $2.5 billion. Principal and interest payments will be deferred for one year. Eligible banks can originate new Main Street loans, or use the Main Street loans to increase the size of existing loans to businesses. 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. 

Businesses that have applied for or received PPP loans may also take out Main Street Loans. Businesses seeking the loans must commit to make reasonable efforts to retain workers and maintain payroll. Borrowers must also follow compensation, stock repurchase and dividend restrictions that apply to direct loan programs under the CARES Act. 

The Fed will also broaden the range of assets that are eligible collateral for TALF. Triple-A rated tranches of both outstanding commercial mortgage-backed securities and newly issued collateralized loan obligations are now TALF-eligible collateral.

“Businesses have shuttered, workers are staying home, and we have suspended many basic social interactions. People have been asked to put their lives and livelihoods on hold, at significant economic and personal cost,” Powell said. 

“It is worth remembering that the measures we are taking to contain the virus represent an essential investment in our individual and collective health. As a society, we should do everything we can to provide relief to those who are suffering for the public good.”