Fed Action Pumps up to $2.3T into Loans
WASHINGTON – The Federal Reserve took additional actions that provide up to $2.3 trillion in loans to support the economy at a time when some lenders, such as Wells Fargo, are tapping out on the amount of money they could offer businesses.
The Federal Reserve says the funding will help households and employers of all sizes, and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.
“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,” says Federal Reserve Board Chair Jerome H. 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.”
Federal Reserve actions will:
- Bolster the Small Business Administration’s Paycheck Protection Program (PPP) by supplying liquidity to participating financial institutions through term financing backed by PPP’s small business loans, which lends money so they can keep workers on the payroll. The Paycheck Protection Program Liquidity Facility (PPPLF) will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.
- Ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program. The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) will provide $75 billion in equity to the facility.
- Increase the flow of credit to households and businesses through capital markets by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury.
- Help state and local governments manage cash flow stresses by establishing a Municipal Liquidity Facility that offers 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 Municipal Liquidity Facility using funds appropriated by the CARES Act.
The Main Street Lending Program will enhance support for small and mid-sized businesses that were in good financial standing before the crisis by offering 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. Principal and interest payments will be deferred for one year.
Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses. Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. Firms that have taken advantage of the PPP may also take out Main Street loans.
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