Fed expands use of credit facilities to offer additional $2.3 trillion in loans

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WASHINGTON — The Federal Reserve announced a slew of actions Thursday to provide up to $2.3 trillion in loans to ensure the smooth flow of credit to businesses as the economic effects of the coronavirus become increasingly visible.

The Fed said it would purchase up to $600 billion in loans through the Main Street Lending Program, which Congress allowed for in the stimulus package it passed last month. The Treasury Department will also provide $75 billion in equity to the program.

Through that program, small and midsize companies that either employ up to 10,000 workers or have less than $2.5 billion in revenue will be able to obtain four-year loans, with principal and interest payments deferred for a year. Those companies “must commit to make reasonable efforts to maintain payroll and retain workers” and comply with the stock buyback restrictions laid out in the CARES Act.

Banks that originate loans through the program can hold a 5% share, selling the rest to the facility.

The Fed is collecting feedback from lenders, borrowers and other interested parties on the program until April 16.

“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," Fed Chairman Jerome Powell said Thursday.
“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," Fed Chairman Jerome Powell said Thursday.

The Fed is also creating a Municipal Liquidity Facility to support state and local governments with up to $500 billion in lending, and is expanding its already-announced Primary and Secondary Market Corporate Credit Facilities, each of which will now support up to $850 billion in credit.

The Treasury is backing $35 billion for the Municipal Liquidity Facility using funds appropriated by the stimulus package, and is offering $85 billion in credit protection for the Primary and Secondary Market Corporate Credit Facilities.

The nation’s central bank will also offer more support to the Small Business Administration’s Paycheck Protection Program through its creation of a Paycheck Protection Program Liquidity Facility, which will supply credit to banks that make loans through the program. The Fed will take the loans as collateral at face value, it said in a release.

“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,” said Fed Chairman Jerome Powell said in the release. “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.”

Additionally, the Fed is expanding the assets that are eligible collateral for its previously announced Term Asset-Backed Securities Loan Facility to include triple A-rated outstanding commercial mortgage-backed securities and newly issued collateralized loan obligations.

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Commercial lending Coronavirus Small business lending SBA Munis Jerome Powell Liquidity Federal Reserve Paycheck Protection Program
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