covid-19: u.s. federal policy response · 2020. 5. 19. · covid-19: u.s. federal policy response...

COVID-19:U.S. FEDERAL POLICY RESPONSE

MAY 14, 2020

Economic overview of key U.S. policies being implemented to address the impacts of the pandemic.

Author: Rebecca RockeyEconomist, Global Head of Forecasting

All information is subject to change as our understanding evolves or as policy details are released.

POLICY RESPONSE TIMELINE & VALUE

Source: Various congressional bills, Federal Reserve, Moody’s Analytics (costs of bills)

Timeline, Yes, Please Zoom InLots of action, a lot of which is “behind the scenes”

Fed lowers fed funds by 50 bps (March 3)

Coronavirus Preparedness and

Response Supplemental

Appropriations Act(March 6, $8.3B)

WHO declares COVID-19 a pandemic(March 11)

Fed lowers fed funds by 100 bps to the zero lower

bound in another inter-meeting cut. It also

expands QE by $500B, MBS purchases by $200B

and its overnight/repo operations. Five swap

lines initiated with foreign central banks.

(March 15)

President Trump issues national CDC guidance on COVID-

19. Fed lowers discount/primary

credit rate by 150 bps to 0.25%.

(March 16)

Families First Coronavirus

Response Act(March 18, ~$172B)

Fed, FDIC and OCC provide guidance to banks to enhance

liquidity. Fed establishes of CPFF and PDCF. Trump

invokes DPA.(March 17)

Fed establishes MMLF. Treasury and IRS provide

guidance on moving the April 15

tax deadline.(March 18)

Fed establishes temporary U.S. dollar liquidity

arrangements with nine central banks.

Fed, FDIC, and OCC issue CRA

guidance to banks.(March 19)

Fed enhances dollar liquidity with other central banks and expands MMLF.

Treasury and IRS finalize tax deferral to

July 15.(March 20)

All financial regulators issue joint

statement encouraging banks

to modify or restructure loans of impacted borrowers.

(March 22)

Fed launches unlimited QE and

new credit facilities (TALF, PMCCF,

SMCCF). It expands the CPFF and

MMLF.(March 23)

Fed announces reduction in examination

activities and will focus on

monitoring/outreach at banks.

(March 24)

Five financial regulators encourage small dollar loans to impacted borrowers.

(March 26)

Coronavirus Aid, Relief, and

Economic Security Act(March 27,

$2.3T)

President Trump extends

stay at home/CDC guidance.(March 29)

Fed establishes FIMA repo facility to provide liquidity to

international financial and Treasury

markets.(March 31)

Fed changes supplemental leverage ratio to ease bank

liquidity.(April 1)

SBA PPP Loan processing begins. Federal and state

financial regulators issue guidance on mortgage servicer

flexibility (consistent with CARES Act).

(April 3)

Fed, FDIC, and OCC change community bank leverage ratio. Fed begins CPFF processing and

announces SBA PPP lending facility.

(April 6)

Fed announces expansion of existing

facilities and the parameters of the two

new Main Street Lending Facilities, totaling $2.3T in

liquidity.(April 9)

Fed increases intra-day

credit/liquidity.

(April 23)

Congress approves more funding for SBA PPP program as well as aid for healthcare

and S&L governments.(April 4, $484B)

Fed expands scope of Municipal

Liquidity Facility(April 27)

U.S. is first country to register 1 million

confirmed cases of COVID-19.(April 28)

Fed expands Main Street Lending program to firms with up to 15k employees

or $5B in revenue. Changed other criteria and

created 3rd Main Street Lending Facility. Expands

PPP lending facility.(April 30)

Fed alters LCR rules for banks

participating in PPP and municipal loan

facilities.(May 5)

NY Fed announces it will start purchases of ETFs, a first for the Fed, via the

SMCCF.(May 11)

Key:CongressFed/RegulatoryOther

8.7M

10.7M(March)

24.8M

39.5M

20.1M(April)

6.2M(May) 37.0M

Source: ETA, BLS

Economic fallout underwayLook no farther than the labor market

Job losses mounting Cumulative Initial Claims, % of February Emp.

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March April May (MTD)

Jobs created since Great Recession trough

(2/1/2010 – 2/1/2020)

Initial jobless claims since 3/20

Great Recession total job losses (peak to trough)

Initial jobless claims filed during Great Recession (12/1/2007 – 6/30/2009)

Source: Center on Budget and Policy Priorities, Oxford Economics/Moody’s Analytics, Cushman & Wakefield Research. *2007 nominal GDP used for GFC, 2019 nominal GDP used for present. **Assumes Fed will provide up to $5T in QE, the amount specified prior to it declaring that QE would be unlimited if necessary.https://www.cbpp.org/research/economy/the-financial-crisis-lessons-for-the-next-one

Stimulus Program Comparison: COVID-19 Response is Big!2007-2010 Global Financial Crisis (GFC) vs. Covid-19 Crisis

$1.5 $2.4

$12.3

$9.9

10.10%11%

85.3%

46%

13.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

$0

$2

$4

$6

$8

$10

$12

$14

2008-10 Congress 2020 Congress 2008-10 (including Fed) 2020 (including Fed)**

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GD

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With 4th billFirst 3 bills

Total committed, not necessarily disbursed/drawn.

https://www.cbpp.org/research/economy/the-financial-crisis-lessons-for-the-next-one

Source: Oxford Economics, Moody’s Analytics, JCT, CARES Act*Note: estimates vary by source

CARES Act: Composition of SpendingSize = $2.2T to $2.4T*

Business Aid

SBA Loans ($377B)

Treasury / Fed Lending Facilities ($454B) Tax Deferrals / Breaks ($275B)

Household Aid

Unemployment Insurance ($250B)

Direct payments ($301B)

Other

S&L Government Aid

($150B)

Healthcare & Veteran's Care

($117B)

Other ($227B)

Airline / Air Cargo

/ Nat'l Security Loans & Grants ($78B)

Public Transport ($25B)

Business Aid Household Aid Other

Source: U.S. Bureau of Labor Statistics, U.S. Employment & Training Administration

Aid for HouseholdsIndirect cash flow aid for Multi-family

Employment Expansion of claims programs through 7/31/2020

40

60

80

100

120

140

160

1971

1975

1979

1983

1987

1991

1995

1999

2003

2007

2011

2015

2019

Milli

ons

Covered Employment Total Employment

Expansion of eligibility to

close this gap

$0

$200

$400

$600

$800

$1,000

$1,200

Average StateBenefit

Average State+ Federal

COVID Benefit

Avg Weekly Claim AmountState State+Federal

0

5

10

15

20

25

30

35

40

Mode StateDuration

State +FederalCOVID

Duration

Avg # of WeeksState State+Federal

Source: Joint Committee on TaxationExcludes the direct cash payments (rebates).

Estimated Value Of Tax Policy ChangesCARES Act changes only

-$300

-$200

-$100

$0

$100

$200

$300

$400

$500

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Billi

ons

Employee Retention Tax Credit Payroll Tax Deferral NOL Carryback Chg in Loss Limit for non-Corporates Other

$668B in liquidity in 2020-2021

Source: SBA

Composition of PPP Lending: Round 1Approvals through 4/16/2020, based on $342B of approvals

NAICS Sector Approved Loans Approved Dollars ($) % of

AmountConstruction 177,905 44,906,538 13.1%

Professional, Scientific, and Technical Services 208,360 43,294,714 12.7%

Manufacturing 108,863 40,922,240 12.0%

Health Care and Social Assistance 183,542 39,892,493 11.7%

Accommodation and Food Services (6) 161,876 30,500,418 8.9%

Retail Trade 186,429 29,418,369 8.6%

Wholesale Trade 65,078 19,489,410 5.7%

Other Services (except Public Administration) 155,319 17,707,077 5.2%

Administrative and Support and Waste Management and Remediation Services 72,439 15,285,814 4.5%

Real Estate and Rental and Leasing 79,784 10,743,430 3.1%

Transportation and Warehousing 44,415 10,598,076 3.1%

Finance and Insurance 60,134 8,177,042 2.4%

Educational Services 25,198 8,062,652 2.4%

Information 22,825 6,675,630 2.0%

Arts, Entertainment, and Recreation 39,670 4,939,280 1.4%

Agriculture, Forestry, Fishing and Hunting 46,334 4,374,344 1.3%

Mining, Quarrying, and Oil and Gas Extraction 11,168 3,894,793 1.1%

Industries not classified 5,570 1,197,354 0.4%

Management of Companies and Enterprises 3,211 1,170,748 0.3%

Utilities 3,247 1,027,575 0.3%

% of Count(inner)

% of Amount(outer)

< $150K > $150K - $350K> $350K - $1M > $1M - $2M> $2M - $5M > $5M

Average size = $206K

Source: Cushman & Wakefield Research, various Senate sites

PPP & Health Care Enhancement ActSize = $484B

$310

$60

$75

$25

SBA PPP Loans EIDL Loan Program Hospitals COVID-19 Testing

$10B in $10,000 EIDL grants$50B in EIDL loans

($350-$400B in EIDL loans when levered)

$322B appropriated($12B to cover fees)

Source: Federal Reserve

Fed Balance SheetAs of May 6, 2020

This is the Fed doing “whatever it takes”

$0

$1

$2

$3

$4

$5

$6

$7

$8

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Trilli

ons

Treasury Agency MBS Repos LF/CF Float CB Swaps Other

PROGRAM DETAILS

Source: CARES Act

Support for Small BusinessesPPP Loans

Provision Size Details Pros / Cons

Paycheck Protection Program

$349B(CARES Act)

$310B(PPP and Health Care Enhancement Act)

• Businesses with 500 or fewer employees per physical location, including sole proprietors, independent contractors and self-employed (NAICS 72, size limit by physical location).

• Had to have been in business before 2/15/20.

• Does not require approval of SBA. Removes credit check and collateral requirements.

• SBA guarantees loans originated by its thousands of partner lending institutions. Secondary market cap at $100B.

• Lesser of $10M or 2.5x average monthly payroll.

• Loans have 1.0% interest rate, 2-year term. Payments on portion not eligible for forgiveness can be deferred for 6-months.

• Amounts spent to support payroll, insurance premiums, rent, mortgage in the 8 weeks following origination can be forgiven, provided 75% of portion eligible for forgiveness spent on payroll specifically.

• Forgiveness amount reduced proportional to decrease in headcount or wages relative to a year ago period.

• Uses existing infrastructure to distribute funds

• Terms of forgiveness incentivize worker retention and essential payments

• Low interest rate

• Wide eligibility with few/any restrictions

• Banks may have limited administrative capacity

• Only covers 8-10 weeks of expenses

• Expansion requires additional act of Congress

• Borrowers cannot use employee retention tax credit or payroll tax deferment until 2021

*Estimates vary by analyst/firm

Support for Small BusinessesEIDL Grants and Loans

Provision Size* Details Pros / Cons

Economic Injury Disaster Loans

(EIDL Program)

$10B in grants (CARES Act)

Plus $1.1B already in the financing account

$10B in grants$50B in loans(PPP and Health Care Enhancement Act)

(This can be levered up to 7-8x, bringing estimated liquidity value to $350-$400B.)

• Businesses with 500 or fewer employees per physical location, including sole proprietors, independent contractors and self-employed.

• Had to have been in business before 1/31/20.

• Direct loans from SBA.

• No forgiveness, although $10,000 emergency grant can be applied for as bridge funding. This is forgiven whether the applicant is approved for the EIDL loan or not.

• Up to $2 million, 30-year term, 3.75% interest rate for small businesses, 2.75% for not-for-profits, up to 12-month deferral. Terms are on a case-by-case basis.

• Can be used for: Sick leave for employees, payroll, meeting increased costs due to COVID-19 disruptions to supply chain, rent/mortgage payments, utilities, repaying other obligations that cannot be met due to revenue loss.

• For loans greater than $200,000, a personal guarantee is required. SBA will not require real estate as collateral and any person with an interest in the company worth 20% or more must be a guarantor.

• No loan fees, guarantee fees or prepayment fees.

• Uses existing infrastructure to distribute funds

• Terms incentivize worker retention and essential payments

• Low interest rate

• Wide eligibility with few/any restrictions

• Due to heightened volumes, SBA may be more delayed than usual in processing applications and distributing funds

• Expansion requires additional act of congress

Source: Federal Reserve Term Sheet

Support for Small BusinessesFed SBA PPP Purchases


Treasury/Fed:

PPP Lending Facility

$0B/$659B (TBD)

• All depository institutions that originate PPP Loans are eligible to borrow under the Facility. The Board is working to expand eligibility to other lenders that originate PPP Loans in the near future. Purchases to last through 9/30/2020.

• Only collateral are SBA PPP loans.

• The maturity date of an extension of credit under the Facility will equal the maturity date of the PPP Loan pledged to secure the extension of credit. The maturity date of the Facility’s extension of credit will be accelerated if the underlying PPP Loan goes into default and the eligible borrower sells the PPP Loan to the SBA to realize the SBA guarantee or if borrower receives loan forgiveness reimbursement.

• Extensions of credit under the Facility will be made at a rate of 35 basis points.

• No fees associated with loans.

• As of April 30, all PPP lenders are eligible (in contrast, only certain PPP lenders were eligible prior to the program’s expansion).

• Provides additional bank liquidity to make PPP or other loans

• Does not penalize banks under risk-based capital rules or leverage capital ratios

Source: Federal Reserve Term Sheet*Excludes mandatory principal payments,Note that program criteria were altered on April 30.

Support for Medium BusinessesMain Street Lending Program – NEW Loan Facility


Treasury/Fed:

Main Street New Loan Facility

(MSNLF)

$75B/$600B

(between all Main Street Facilities)

(of $454B in Treasury funding)

• Treasury investing this money to backstop Fed lending facilities. Some portion of these funds will be placed into Main Street New/Expanded Lending Program with an initial target of $600B in liquidity. Purchases to be made thru 9/30/2020.

• Targets U.S. companies with employment up to15,000 or $5B in revenue. This was changed to 15,000 employees or $5B in revenue on May 1 in the Fed’s first expansion of its coverage. SBA PPP borrowers are eligible.

• Not available to non-U.S. companies or those currently in bankruptcy.

• Term is four years. Deferral of P&I for up to one year. Interest rate is Libor + 300 bps. No prepayment fee. Minimum amount is $500K, Maximum loan size that is the lesser of (i) $25 million or (ii) an amount that, when added to the eligible borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the eligible borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”). Years 2-4 of loan, 33.3% of principal must be paid per year.

• Proceeds should be used with reasonable effort to maintain borrower’s payroll and to retain its employees during the term. Cannot be used to repay existing debt*, credit lines, etc. Must follow restrictions outlined in CARES Act (e.g., dividend, executive compensation, etc.).

• Banks must retain 5% of the loan.

• Ability to use leverage means that the program could potentially be enormous and capital efficient

• Interest rates well below market rate capital

• Creates incentives to retain workers and wages

• No provisions for loan forgiveness. Could leave companies over-levered post-crisis.

• Reduces companies’ ability to reduce costs

• Bank or other restrictions could reduce uptake

• Implementation timeline as yet unclear

• Not-for-profits not eligible

Source: Federal Reserve Term Sheet*Excludes mandatory principal payments.Note that program criteria were altered on April 30.

Support for Medium BusinessesMain Street Lending Program – EXPANDED Loan Facility


Treasury/Fed:

Main Street ExpandedLoan Facility

(MSELF)

$75B/$600B




• Targets U.S. companies with employment up to10,000 or $2.5B in revenue. This was changed to 15,000 employees or $5B in revenue on May 1 in the Fed’s first expansion of its coverage. SBA PPP borrowers are eligible.

• Not available to non-US companies or those currently in bankruptcy.

• Term is four years. Deferral of P&I for up to one year. Interest rate is Libor + 300 bps. No prepayment fee. Minimum amount is $10M, maximum is the lesser of (i) $200 million, (ii) 30% of the eligible borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the eligible borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the eligible borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”). Years 2-4 of loan, 15%/15%/70% of principal must be repaid.











Source: Federal Reserve Term Sheet*Excludes mandatory principal payments.Note that program criteria were created on April 30.

Support for Medium BusinessesMain Street Lending Program – PRIORITY Loan Facility


Treasury/Fed:

Main Street Priority Loan Facility

(MSPLF)

$75B/$600B




• Targets U.S. companies with employment up to10,000 or $2.5B in revenue. This was changed to 15,000 employees or $5B in revenue on May 1 in the Fed’s first expansion of its coverage. SBA PPP borrowers are eligible.

• Not available to non-US companies or those currently in bankruptcy.

• Term is four years. Deferral of P&I for up to one year. Interest rate is Libor + 300 bps. No prepayment fee. Minimum amount is $500K, maximum is the lesser of (i) $25 million, (ii) 30% of the eligible borrower’s existing outstanding and committed but undrawn bank debt, or (iii) an amount that, when added to the eligible borrower’s existing outstanding and committed but undrawn debt, does not exceed six times the eligible borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”). Years 2-4 of loan, 15%/15%/70% of principal must be repaid.












Support for Large BusinessesCorporate Bond Markets


Treasury/Fed:

Primary Market Corporate Credit Facility (PMCCF)

$50B/$500B

(between both PMCCF and SMCCF)


• Purchase portions of syndicated loans or bonds at issuance until 9/30/2020. U.S. companies only.

• $75B total credit protection, $50B directed at primary market, $25B directed at secondary market.

• Limited to IG securities. Eligible bonds/securities are those made by eligible issuer and a maturity of 4 years or less. Issuers cannot have received other federal support from CARES Act or subsequent legislation.

• Issuer must have been rated IG (BBB- or higher) as of March 22,2020. Downgraded BBB- to BB- are eligible provided two rating agencies confirm the rating status. Any eligible issuer is capped at 1.5 percent of the combined potential size of PMCCF and the SMCCF.

• PMCCF will leverage the Treasury equity at 10 to 1 when acquiring corporate bonds or syndicated loans from issuers that are IG at the time of purchase. PMCCF will leverage its equity at 7 to 1 when acquiring any other type of eligible asset.

• Corporate bond pricing will be issuer-specific, informed by market conditions, plus a 100 bps facility fee. PMCCF will receive the same pricing as other syndicate members, plus a 100 bps facility fee on the Facility’s share of the syndication.

• Massive potential support – billions of dollars to restore function to bond markets

• Could become active very quickly

• No relief to high yield issuers

Treasury/Fed:

Secondary Market Corporate Credit Facility (SMCCF)

$25B/$250B




Support for Large BusinessesCorporate Bond Markets


Treasury/Fed:

Primary Market Corporate Credit Facility (PMCCF)

$50B/$500B



• Purchase bonds at issuance or exchange-traded funds aimed at corporate bonds until 9/30/2020. U.S. companies only.

• $75B total credit protection, $50B directed at primary market, $25B directed at secondary market.

• Limited to investment grade securities. Eligible bonds/securities are those made by eligible issuer and a maturity of 5 years or less. Issuers cannot have received other federal support from CARES Act or subsequent legislation.

• Issuer must have been rated IG (BBB- or higher) as of March 22,2020. Downgraded BBB- to BB- are eligible provided two rating agencies confirm the rating status. Any eligible issuer is capped at 1.5 percent of the combined potential size of PMCCF and the SMCCF.

• SMCCF will leverage the Treasury equity at 10 to 1 when acquiring corporate bonds or syndicated loans from issuers that are IG at the time of purchase. SMCCF will leverage its equity at 7 to 1 when acquiring asset from below-IG issuer at the time of purchase and in a range between 3 to 1 and 7 to 1, depending on risk, when acquiring any other type of eligible asset.

• Pricing will be market fair value. No ETF purchases when they trade at prices that materially exceed the estimated net asset value of the underlying portfolio.

• Massive potential support – billions of dollars to restore function to bond markets

• Could become active very quickly

• No relief to high yield issuers

Treasury/Fed:

Secondary Market Corporate Credit Facility (SMCCF)

$25B/$250B




Support for All BusinessesAsset-backed Bond Markets, including non-agency CMBS


Treasury/Fed:

Term Asset-Backed Securities Loan Facility (TALF)

$10B/$100B • Purchase and facilitate issuance of (not-synthetic) ABS. U.S. companies only with primary dealer relationship. Loans issued in this facility have 3-year term. Will not allow substitution of collateral.

• ABS include loans backed by: auto loans and leases, student loans, corporate and consumer credit card receivables, equipment loans and leases, floorplan loans, insurance premium finance loans, some SBA-guaranteed loans, leveraged loans and commercial mortgage loans.

• Must have highest short/long-term credit rating depending on collateral.

• CMBS issued on or after March 23, 2020 will not be eligible. For CMBS, the underlying credit exposures must be to real property located in the United States or one of its territories.

• The detailed CMBS terms and conditions will further define the eligible underlying credit exposures for purposes of the TALF. The definitions are expected to be broadly consistent with the defined terms used for purposes of the TALF established in 2008.

• Restriction on single-asset single-borrower (“SASB”) CMBS and commercial real estate collateralized loan obligations (“CRE CLOs”): SASB CMBS and CRE CLOs will not be eligible collateral. Restrictions on CLO loan substitution: Only static CLOs will be eligible collateral.

• Collateral Valuation: Haircut schedule is in the table to the right. The haircut schedule is consistent with the haircut scheduled used for the TALF established in 2008. Haircuts appear to be about 17%.

• For CLOs, the interest rate will be 150 basis points over the 30-day average secured overnight financing rate (“SOFR”).

• *For legacy CMBS with average lives beyond five years, base dollar haircuts will increase by one percentage point of par for each additional year (or portion thereof) of average life beyond five years. No securitization may have an average life beyond ten years.

• Provides liquidity to high-grade ABS, including private CMBS/CLO

• Does not address market outside of AAA-rated private CMBS/CLOs

• Restrictions on collateral, haircuts reduce attractiveness

Average ABS Life CMBS Haircut

0-1 15%

1-2 15%

2-3 15%

3-4 15%

4-5 15%

5-6 16%

6-7 17%*

*Estimates vary by analyst/firm. Figures for tax provisions are from JCT estimates.

Support for All Businesses (cont’d)Tax Provisions

Provision Size* • Details Pros / Cons

Employee Retention Credit

$55B • Refundable payroll tax credit for 50% of wages incurred between 3/12/20 and end of year, up to $10K per employee per quarter

• Less than 100 employees, applies to all wages. More than 100, then to employees not able to provide services

• Businesses that are fully or partially suspended or have revenues decline over 50% eligible

• Paycheck Protection Program borrowers ineligible. Most benefit accrues in 2020-21.

• Incentivizes employers to retain workers and wages

• Particularly favorable for small firms

• Not generous enough compared to European programs

• Could be difficult to administer

Payroll Tax Deferment

$12B • Employers and self-employed can defer payroll taxes for 2020 with half coming due by YE 2021 and the remainder by YE 2022

• Paycheck Protection Program borrowers ineligible.

• Provides ~$350B in near-term liquidity based on JCT estimates (but only costs $12B over the 10-year budget horizon). Payroll taxes due in 2022-23 offset near-term benefit.

• Enhances liquidity and reduces labor costs during the acute stress period

• Wide range of firms eligible

• Firms have to somehow come up with the money later which could cause distress

*Estimates vary by analyst/firm. Figures for tax provisions are from JCT estimates.

Support for All Businesses (cont’d)Tax Provisions


Changes to Net Operating Losses

$25.5B • NOL’s from 2018-2020 can be carried back for five years and can be applied to 100% of taxable income.

• Nearly $90B in near-term benefit (2020-21).

• Additional source of cash for firms that have paid taxes in recent years

• Must incur losses first in order to obtain tax rebate

Interest Rate Deductibility

$13B • Can deduct 50% of business interest rather than 30%. • Reduces taxes

Limitation on business losses for non-corporates

$170B • TCJA limited business loss deductions to $250K single / $500K married. This limit has been removed.

• Most benefit accrues in 2020-21.

• Enables pass-through businesses to deduct all of their losses, reducing taxes

• Permanent change. Not sure how cost effective this will be. Potentially regressive

Qualified Improvement Property

N/A • Changes depreciation schedule on QIP from 40 years to 20 years. • Fixes mistake in TCJA. Good for real estate

Total ~$275B

Source: CARES Act

Support for Specific IndustriesTargeted aid


Direct support to harmed industries

$78B


• $25B loans / $25B grants for passenger air carriers• $4B loans / $4B grants for cargo air carriers• $3B grants airline-related contractors• $17B loans for critical national security businesses

• Combination of grants, loans and loan guarantees

• Possible that grants will be in exchange for non-voting equity

• Similar restrictions on business actions during and after loan repayment

• Addresses some of the needs for critically harmed industries

• Grant portions reduce problem of leverage post-crisis

• No support for hospitality sector

• Significant loan portion pushes problems down the road

Source: Federal Reserve, CARES Act, Oxford Economics, various sources

Monetary policyCurrent standing of actions

Policy Tool/Action NoteFed Funds Rate ZIRP Lowered 150 bps via two intermeeting cuts

Open-ended QE Treasuries, gov’t-backed MBS and CMBS, unlimited

Repo intervention Unlimited money market support

Forward guidance Lower for longer

Discount window Lowered borrowing rate

Dollar swap lines Price lowered, adding new swap lines, term increased to 90 days

Intraday credit Extended via Federal Reserve Banks

Reserve requirement ratio Cut to zero

Commercial Paper Funding Facility (CPFF) Backed by $10B at Treasury

Money Market Mutual Fund Liquidity Facility Backed by $10B at Treasury

Primary Dealer Credit Facility (PDCF) Terms up to 90 days, facility running for 6 months +

Primary Market Corporate Credit Facility (PMCCF) Support new corporate bond issuance, backed by $50B at Treasury

Secondary Market Corporate Credit Facility (SMCCF) Purchase investment grade corporate bonds < 5yr maturity, backed by $25B at Treasury

Term Asset-Backed Securities Loan Facility (TALF) Support issuance of ABS collateralized by loans, backed by $10B at Treasury, includes CMBS

Temporary FIMA Repo Facility Interest rate set at 25 basis points over the rate on IOER

Temporary change to the supplementary leverage ratio rule Treasuries and deposits temporarily exempt from ratio calculation

Main Street Business Lending Program Provide $600B liquidity to mid-sized companies via $75B of Treasury backstop funding

SBA PPP Loan Facility Can purchase SBA PPP loans (volume not specified)

Municipal Liquidity Facility Can purchase up to $500B of eligible notes

*Estimates vary by analyst/firm*Includes FHA, NHA-insured HECMs, HUD-insured, VA, RHS, USDA, Fannie Mae or Freddie Mac loans or insured loans.

Other Actions

Provision/Entity Size* Details

Tax Credits for Paid Sick/Family Medical Leave

(2nd Bill)

$105B • Payroll tax credits for qualified sick leave wages and family leave paid by an employer will be allowed in the amount of benefits paid over the permitted duration; and an individual tax credit for qualified sick leave and family leave for self-employed individuals in the amount of $200 a day or 67% of average daily pay for self-employed individuals over the permitted duration

FHFA/HUD Action N/A • 60-day moratorium on evictions, foreclosures (FHA, Fannie, Freddie)• 90-day forbearance on GSE-backed loans (90-day forbearance on rent) – consistent with CARES Act requirement

CARES Act N/A • 120-day consumer credit protection (to defer 1 or more payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract, or any other assistance or relief granted); no credit score impact

• 180-day forbearance for federally-backed single-family mortgages**, no additional fees, interest or penalties allowed, option toextend another 180 days if borrower requests during covered period

• 30-day forbearance for federally-backed multifamily loans (if loan was current on 2/1/2020), option to extend to a total of 90-days; cannot evict or charge late fees to tenants if this request is made. Covered period is thru 12/31/2020.

• 120-day moratorium on evictions in properties backed by federal or federally-insured mortgages, including multifamily• 60-day moratorium on foreclosures of properties backed by federal or federally-insured mortgages, including multifamily

FDIC/OCC (CARES Act)

N/A • Allowing banks to modify, refinance and restructure loans that were current prior to COVID-19 without compliance penalties (particularly for deferrals, ‘TDR’s)

• SBA-backed loans held by banks can be modified, extended, suspended and/or payments can be deferred

Source: Federal Reserve (Term Sheets), CARES Act, various sources*Based on the announcement’s implication of a 10-to-1 leverage ratio.

Other Fed Facility DetailsForeign banks, domestic financial firms and state/local government liquidity

Provision Size Details

Temporary FIMA Repo Facility

N/A • Allow foreign central banks to temporarily raise dollars by selling U.S. Treasuries to the Federal Reserve's System Open Market Account and agreeing to buy them back at the maturity of the repurchase agreement. The term of the agreement will be overnight but can be rolled over as needed. The transaction would be conducted at an interest rate of 25 basis points over the rate on IOER Eligible borrowers are central banks and other foreign monetary authorities with accounts at the Federal Reserve Bank of New York

Money Market Mutual Fund Liquidity Facility

$10B / $100B* • Maturity of 12 months or that of the pledged collateral; advances are non-recourse• Fund must identify itself as a Prime, Single State, or Other Tax-Exempt money market fund• Securities must be Treasuries; full-guaranteed Agencies; GSE-backed securities, asset-backed/unsecured commercial paper or certificate

of deposit rate A1, F1, P1; high-grade municipal short-term debt; variable rate demand notes; certain repurchase agreements• Interest, collateral valuation at amortized cost applied to non-Treasury, non-GSE or Agency backed collateral• Through 9/30/2020. No regulatory capital penalty applied to this debt.

Commercial Paper Funding Facility (CPFF)

$10B / $100B* • Purchase three-month U.S. dollar-denominated commercial paper that is rated at least A1/P1/F1• Eligible issuers are U.S. issuers of commercial paper, including municipal issuers and U.S. issuers with a foreign parent company• The maximum amount of a single issuer’s commercial paper the SPV may own at any time will be the greatest amount of U.S. dollar-

denominated commercial paper the issuer had outstanding on any day between March 16, 2019 and March 16, 2020• Program goes through March 17, 2021

Primary Dealer Credit Facility (PDCF)

N/A • Terms up to 90 days, facility running for 6 months +• Credit extended to primary dealers under this facility may be collateralized by a broad range of investment grade debt securities, including

commercial paper and municipal bonds, and a broad range of equity securities. • Interest rate charged will be the primary credit rate, or discount rate

Municipal Liquidity Facility

$35B / $500B • Used funds from 2nd bill in Exchange Stabilization Fund• Short-term (24 months) notes only, available thru 9/30/2020• U.S. states (and DC), cities with a population of one million or counties with a population of two million eligible• Up to an aggregate amount of 20% of the general revenue from own sources and utility revenue of the applicable State, City, or County

government for fiscal year 2017

https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm

COVID-19:U.S. FEDERAL POLICY RESPONSEMAY 14, 2020

2020 Cushman & Wakefield.

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covid-19: u.s. federal policy response · 2020. 5. 19. · covid-19: u.s. federal policy response...

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