Fed Announces $2.3 Trillion Loan Program to Support Economy

The Federal Reserve today acted to provide up to $2.3 trillion in additional loans to support the economy.

To bridge the economy from the current period, where it is partially shut down due to virus mitigation efforts, to an eventual period of economic recovery, the Federal Reserve aggressively expanded its toolbox for providing liquidity.

This occurs as the number of new jobless claims totaled more than 16 million over the last 3 weeks. The moves will shore up the existing Paycheck Protection Program (PPP), which provides loans to small and medium-sized businesses, as well as creating a lending facility of $500 billion to help state and local governments. The programs represent an additional $2.3 trillion in economic support for the economy.

The Fed will take the following actions to keep credit flowing to small businesses:

  • Bolster the effectiveness of the Small Business Administration’s PPP by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses. The PPP provides loans to small businesses so that they can keep their 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; and
  • Help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer 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.