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

This week Federal Reserve Chairman Jerome Powell acknowledged that while the actions taken by Congress, Treasury and the Federal Reserve have provided a measure of relief and stability, the COVID-19 crisis raises longer-term concerns.  To mitigate these concerns, Chairman Powell acknowledged that additional policy measures may be necessary, including in the form of additional fiscal support.

To that end, Democrats in the House of Representatives have proposed new legislation that would provide additional funds to entities affected by COVID-19.  Proposals relevant to financial institutions include additional assistance to small businesses and mandates for establishment of Federal Reserve facilities focused on mortgage servicers, residential rental property owners and non-profit organizations.  The proposed legislation is seen as Democrats’ opening bid for negotiations with Republicans.

With regard to previously announced facilities, the Federal Reserve provided additional guidance on the Term Asset-Backed Securities Loan Facility (“TALF”) in the form of an updated term sheet and FAQs.  Among other modifications, the Federal Reserve:

• Clarified that, in addition to the issuer of the asset-backed securities (“ABS”) and the originator of the obligations backing the ABS needing to be U.S. companies, the underlying credit exposures (“obligors”) need to be U.S.-domiciled or with respect to U.S. real property;
• Indicated that an investment fund may be an eligible borrower if it is created or organized in the United States, and managed by an investment manager that is created or organized in the United States that has significant operations in and a majority of its employees based in the United States;
• Declared ineligible (i) any borrower that has and (ii) any investment fund borrower with a manager that has 10% or more of any class of securities owned by a foreign government; and
• Narrowed the application of the conflicts of interest requirements of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act to borrowers only, instead of both borrowers and issuers.

The Federal Reserve also published updates to the Municipal Liquidity Facility (“MLF”) to provide pricing and other information for the facility.

On May 12, the Secondary Market Corporate Credit Facility (“SMCCF”) began purchasing shares of eligible U.S.-listed exchange-traded funds (“ETFs”).  The Federal Reserve and Treasury also reiterated the intention to have the SMCCF purchase eligible corporate bonds and the Primary Market Corporate Credit Facility (“PMCCF”) operational in the near term. 

Here, we provide a concise summary of these actions, as well as other announced programs and guidance to date.