Fed’s Flurry of Credit Facilities

Update 432 — Fed’s Flurry of Credit Facilities: 
$6 Trillion Balance Sheet Arsenal Explained

The Fed unveiled a panoply of programs this month and last designed to alleviate deteriorating credit access nationwide. The programs range from a backstop for the $4 trillion money-market industry to direct bridge loans for businesses. 

Which of these is tried and true, which less certain because they are new? Which will maintain the financial infrastructure and which ones are targeted at firms, and which firms? We sort out the facilities, their operations and utility below.




Financial markets plunged in late February, anticipating the economic fallout from the coronavirus. In response, the Federal Reserve slashed interest rates to near zero. This didn’t exhaust its weapon shed. Going back to its 2008 playbook, over the weeks since, the Fed has rapidly revived some emergency lending facilities and spun up several new ones. 

These are massive programs that involve Fed lending with first loss equity investments from the Treasury. Below we examine the effectiveness of these programs, considering efficiency, risk, and improvements to the macroeconomy. 

Fed Facilities Tried and True…

Revamping 2008 financial crisis-era facilities has stemmed some bleeding and may be prescient policymaking. Below are the recently-revived Fed initiatives in operation as of today.

  • Commercial Paper Funding Facility (CPFF) — Potential of $100 billion leveraged on $10 billion Treasury investment.

    On March 17, the Fed revived its CPFF, which backstops lending markets and ensures credit availability for businesses and households. Commercial paper is a common type of unsecured, short term debt instrument. Businesses issue commercial paper to fund operations including payroll and overhead. In reviving the CPFF, the Fed will purchase commercial paper and hold it until maturity, giving businesses and households much-needed credit and liquidity. Should short-term rates hold stable, the revival will have been successful. 
  • Primary Dealer Credit Facility (PDCF)

    That same day that the Fed revived the CPFF, it also revived its PDCF, a discount window (where the central bank lends to lenders) for primary dealers. Through PDCF, the Fed will offer short-term loans to 24 (pre-authorized) nonbank Wall Street firms.

    In 2008, the Fed created a similar PDCF, and recipients repaid funds in full. We should expect nothing less today. 
  • Money Market Liquidity Facility (MMLF) — Potential of $100 billion leveraged on $10 billion Treasury investment.

    On March 19, the Fed announced it would create the MMLF. Under this facility, the Fed will lend to U.S. depository institutions and bank holding companies in exchange for collateral the borrowers purchase from prime money market mutual funds. 

    This is similar to the Money Market Investor Funding Facility created in 2008. COVID-19 related investor panic is hitting money markets hard. The Fed has the sole authority to make loans to prime money market funds, which in turn invest in very short-term corporate debt, commercial paper, reverse repurchase agreements, and other forms of short-term debt. 

    Prime money market funds are low-risk, but since 2008, they have been vulnerable to runs from skittish investors. Such funds are vital sources of financing for U.S. businesses and banks. In 2008, runs occurred and threatened financial markets’ stability. The SEC considered creating stricter capital buffer rules but backed down under pressure from Wall Street. The MMLF may be necessary to shore up these critical funds, but the SEC should again consider capital buffer requirements. 
  • Term Asset-Backed Securities Loan Facility (TALF) — Limit of $100 billion leveraged on $10 billion Treasury investment.

    On March 23, the Fed announced it would revive TALF. Through TALF, the Fed will issue asset-backed securities (ABS) to boost consumer spending, jumpstart the economy, and shore up the ABS market. TALF will facilitate $100 billion in loans through September 2020. 

    The Fed originally stood up TALF in late-2008, and over its 15-month lifespan, all TALF loans were repaid. We should expect the revamped TALF to likewise stabilize and stimulate the economy, unfreeze credit markets, and incur few to no losses. 

… and Facilities that are New

The Fed’s response to the coronavirus has arguably been more aggressive than its 2008 response. The Fed’s new lending facilities, listed below, put it in unchartered territory.

  • Corporate Bond Facilities — Limit of $750 billion leveraged on $75 billion Treasury investment. 

    The Fed created two facilities to support the corporate bond market, the Primary Market Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility (SMCCF). The PMCCF will be able to make up to $500 billion in direct bond purchases from companies, while the SMCCF can purchase up to $250 billion on the secondary market. When the Fed announced the facilities in March, they were only for investment-grade bonds. On April 9, the Fed said it would also buy non-investment grade “fallen angel” bonds that were investment grade as of March 22.

    Initial signs show that these moves helped provide liquidity to corporate debt markets. But it’s not clear these facilities will be enough to stem the rising rate of corporate defaults, especially for speculative-grade companies. 
  • Municipal Liquidity Facility (MLF) — Limit of $500 billion leveraged on $35 billion Treasury initial investment. 

    During the 2008 financial crisis, the Fed avoided purchasing municipal debt. Municipal bonds are not nearly as uniform as Treasuries, and the Fed fears that its bond purchases may unfairly create political winners and losers. Even with these concerns, the Fed stood up a new municipal debt facility. The Fed announced it would only buy bonds from states, cities with more than 1 million residents and counties with more than 2 million residents. This facility may help relatively large and well-positioned state and local governments who will not pose a credit risk but leave out those who most need relief.
  • Paycheck Protection Program Liquidity Facility (PPPLF) — Potentially $349 billion in loans as of April 22. 

    While the Small Business Administration (SBA) oversees the $349 Paycheck Protection Program (PPP), banks make the loans. The Fed announced it would serve as a backstop to the PPP and provide liquidity to banks servicing PPP loans by purchasing the loans off of their balance sheets. The program is already up and running with the Fed charging a 0.35 percent interest rate for the service.

    With Congress negotiating another round of PPP funding, it will be critical that banks will have room on their balance sheets to process more loans. The program will be successful if banks don’t experience liquidity restraints in the next round of funding.
  • Main Street Lending Program (MSLP) — Limit of $600 billion leveraged on $75 billion Treasury investment. 

    This program is available to businesses with up to 10,000 employees or $2.5 billion in annual revenues. It will contain two facilities, one for purchasing new loans originated by banks and another for purchasing existing “upsized” loans. Under both facilities, the minimum loan size is $1 million and the Fed will have the banks retain 5 percent of each loan.

    The program could be up and running in a few weeks. It’s unlikely to be attractive to small businesses given the $1 million minimum and the fact that interest payments can only be deferred for one year. Medium-sized businesses with nowhere else to go may seek this program, but these businesses may be wary of taking on more non-forgivable debt. 

Transparency Needed

The $454 billion fund from the CARES Act that backstops the Fed’s lending facilities does not impose meaningful oversight and accountability measures. The Fed is free to lend to businesses without specifying them to the public. The Fed announced it will publish some general data but are claiming an interpretation that seeks to skirt full Congressional oversight. The next legislative package needs more effective oversight in this area, lest hundreds of billions of federal resources go unaccounted for or worse. 

44 thoughts on “Fed’s Flurry of Credit Facilities”

  1. I was wondering if you ever considered changing the structure of your website?
    Its very well written; I love what youve got to say. But maybe you could a little more in the way of content so
    people could connect with it better. Youve got an awful
    lot of text for only having one or 2 images. Maybe you could space it out better?
    0mniartist asmr

  2. Hello there, just became alert to your blog through Google, and found that it is truly informative.
    I’m going to watch out for brussels. I’ll be grateful if you continue this in future.
    Many people will be benefited from your writing. Cheers! 0mniartist asmr

  3. Have you ever thought about writing an ebook or guest authoring
    on other websites? I have a blog based on the same information you discuss and would love to have you share some stories/information. I know my readers would value your work.

    If you’re even remotely interested, feel free to send me an e-mail.

    asmr 0mniartist

  4. Definitely imagine that that you said. Your favourite reason appeared to be on the web the easiest factor
    to keep in mind of. I say to you, I definitely get irked at the same time as people think about concerns that they plainly don’t know about.
    You managed to hit the nail upon the top and also outlined out the entire thing
    without having side-effects , people can take a signal.
    Will probably be back to get more. Thanks asmr 0mniartist

  5. Does your website have a contact page? I’m having a tough time locating it but, I’d like to shoot you
    an e-mail. I’ve got some recommendations for your blog you might be interested in hearing.
    Either way, great blog and I look forward to seeing
    it expand over time. 0mniartist asmr

  6. hello there and thank you for your information – I’ve certainly picked up anything new from right here.
    I did however expertise a few technical points using this site, as I experienced
    to reload the website lots of times previous to I could get it to load properly.
    I had been wondering if your web hosting is OK? Not that I’m complaining, but slow loading instances times will often affect your placement in google and can damage your high-quality score if ads and marketing with
    Adwords. Anyway I am adding this RSS to my
    e-mail and could look out for much more of
    your respective intriguing content. Ensure that you update
    this again very soon.

  7. excellent issues altogether, you simply gained a new reader.
    What could you suggest about your post that you simply made
    some days ago? Any sure?

  8. We’re a gaggle of volunteers and opening a new scheme in our community.
    Your website provided us with useful information to work on. You’ve performed a formidable activity and our entire community will probably be
    thankful to you.

  9. I was curious if you ever thought of changing the layout of your site?
    Its very well written; I love what youve got
    to say. But maybe you could a little more in the way of content so
    people could connect with it better. Youve got an awful lot of text
    for only having one or two pictures. Maybe you
    could space it out better?

  10. I like the helpful information you provide in your articles.
    I will bookmark your blog and check again here frequently.
    I’m quite sure I will learn a lot of new stuff right here!
    Best of luck for the next!

  11. Awesome blog! Do you have any suggestions for aspiring writers?
    I’m planning to start my own website soon but I’m a little lost
    on everything. Would you advise starting with a free
    platform like WordPress or go for a paid option? There are so many options out
    there that I’m totally overwhelmed .. Any tips?

  12. scoliosis
    What i do not understood is in truth how you are
    now not really a lot more well-favored than you might be right now.
    You are so intelligent. You understand therefore significantly when it comes to this subject, produced me in my view believe it from
    so many various angles. Its like women and men are not fascinated except it is something
    to accomplish with Lady gaga! Your individual stuffs
    outstanding. Always take care of it up! scoliosis

  13. scoliosis
    What’s up, the whole thing is going nicely here and ofcourse
    every one is sharing data, that’s genuinely excellent, keep up writing.

  14. scoliosis
    Excellent beat ! I would like to apprentice while you amend your site, how could i subscribe for a blog website?
    The account aided me a acceptable deal. I had been a little bit acquainted of this your
    broadcast offered bright clear concept scoliosis

  15. I’m not sure where you are getting your info, but good
    topic. I needs to spend some time learning more or
    understanding more. Thanks for magnificent information I was looking for this information for my mission.

  16. Hey there, You’ve done a great job. I will certainly digg it and personally recommend to my friends.
    I am confident they’ll be benefited from this website.

  17. Pingback: latest free american dating sites

  18. Definitely believe that which you stated. Your favorite justification seemed to be on the net
    the simplest thing to be aware of. I say to you, I definitely
    get annoyed while people consider worries that they plainly do
    not know about. You managed to hit the nail upon the top as
    well as defined out the whole thing without having side-effects , people can take a signal.

    Will probably be back to get more. Thanks

  19. Howdy I am so excited I found your blog, I really found you
    by mistake, while I was browsing on Aol for something else, Nonetheless
    I am here now and would just like to say many
    thanks for a tremendous post and a all round thrilling blog (I also love the theme/design),
    I don’t have time to read it all at the minute but I have
    bookmarked it and also included your RSS feeds, so when I
    have time I will be back to read much more, Please do keep up the great job.

  20. Hi there! Do you know if they make any plugins to protect against hackers?
    I’m kinda paranoid about losing everything I’ve worked hard on. Any recommendations?

  21. constantly i used to read smaller articles or reviews that also clear
    their motive, and that is also happening with this post which I am reading at this place.

  22. you’re in reality a good webmaster. The web site loading pace is incredible.

    It seems that you’re doing any distinctive trick.

    In addition, The contents are masterwork. you have
    performed a great activity in this subject!

Leave a Comment

Your email address will not be published. Required fields are marked *