The Federal Reserve unveiled plans to provide up to $2.3 trillion in loans to support households and local governments, as the U.S. economy continues to work through the disruptions from the novel coronavirus. The central bank also released more details on its anticipated Main Street Lending Program, which it says will support up to $600 billion in loans tied to small- and mid-sized businesses.
Similar to previously announced liquidity facilities, the Fed and the U.S. Treasury will set up a “special purpose vehicle” to purchase securities and assets, with credit protection and equity supported by the $454 billion in money appropriated in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The Main Street Lending Program was announced by the Fed on March 23 but the central bank now says it will be able to scale up $75 billion in support from the Treasury into $600 billion in 4-year loans to companies hiring up to 10,000 workers or with revenues of less than $2.5 billion.
The loans, to be disbursed through eligible banks, would allow for interest deferred payments for a year and would be at least $1 million in size. Under the program, banks will retain a 5% share of the loan and sell the remaining 95% to a facility to be set up by the Fed.
The Fed and the Treasury say the program is still being finalized and will solicit feedback from the public through April 16.
In addition to the Main Street Lending Program, the Fed has also said it would backstop loans generated under the Paycheck Protection Program. The Fed said Thursday that it would take the loans as collateral at face value.
“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 in a statement.
Notably, the Fed also announced that it will step in to help local and state governments across the country grappling with funding pressures.
The Fed says it will support the purchase of up to $500 billion in short-term notes directly from states and larger counties and cities. The Municipal Liquidity Facility will be supported by $35 billion of credit protection from the Treasury.
The Fed will also expand its liquidity efforts on corporate credit by increasing the size of its Primary and Secondary Market Corporate Credit Facilities and its Term Asset-Backed Securities Loan Facility. The facilities will now support up to $850 billion in credit backed by $85 billion in credit protection from the Treasury.
The programs will now also allow for outstanding commercial mortgage-backed securities and newly-issued collateralized loan obligations.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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