Summary of U.S. Financial Sector Initiatives Responding to COVID-19

Yesterday the U.S. federal government announced the establishment of three new facilities and the expansion of two facilities created last week in order to enhance immediate liquidity and expand the flow of credit to individuals and businesses affected by COVID-19.

Several of these initiatives have now expanded programs beyond those employed in the 2008 financial crisis.

The most significant initiatives and guidance announced since our prior update of March 20 include:

• A new facility to purchase corporate bonds directly from and provide loans directly to U.S. financial and non-financial companies with investment-grade debt;
• A new facility to purchase investment-grade corporate bonds in the secondary market;
• A new asset-backed lending facility designed primarily to finance securities backed by U.S. consumer and small business obligations;
• An expansion of permissible collateral for the MMLF to include U.S. municipal short-term debt;
• An expansion of large-scale asset purchases by the Federal Reserve from $700 billion to “amounts needed to support smooth market functioning”;
• Guidance from federal banking regulators encouraging loan modifications and addressing questions on accounting and loan classification requirements; and
• An executive order from New York Governor Andrew Cuomo mandating forbearance by New York-licensed banks and DFS action to implement mortgage forbearance and suspension of certain banking and credit card fees.

The Federal Reserve and Treasury also previewed a new facility expected in the coming days to provide loans directly to small businesses, complementing the work of the Small Business Administration.

Both the Republican and Democratic legislative proposals under consideration would provide additional Treasury funding to leverage future Federal Reserve facilities—potentially amounting to $4 trillion in lending.  Agreement on a final form of legislation is believed to be imminent.

Please click here for a concise summary of the announced programs and guidance to date, as well as the programs and legislation under active consideration.