Speech

Panel Remarks: The Fed and Main Street during the Coronavirus Pandemic

April 23, 2020
Posted April 24, 2020
Anna Kovner, Vice President and Policy Lead for Financial Stability
As prepared for delivery

It's my pleasure to join this panel on "The Fed and Main Street during the Coronavirus Pandemic."  I'd start by simply saying what we already know, that this is an unprecedented situation that is affecting millions of people around the world in so many different and often devastating ways, including economically.

I'll talk today about some of facilities that the Federal Reserve has announced to support the U.S. economy.  As I share with you some insights about how we are leveraging capital allocated by Congress to the US Treasury to help Americans, please note that I am speaking for myself and these views do not necessarily reflect those of the Federal Reserve System or the Federal Reserve Bank of New York. In compliance with FOMC Policy during blackout periods, I will not be expressing views or analysis about monetary policy issues.

In only five minutes I don't have the time to review each of Federal Reserve facilities,1 but I want to begin somewhere counterintuitive, with facilities that may seem distant from Main Street.  Main street borrowing prices are determined by market prices for Treasuries, corporate bonds and funding costs of banks.  Thus ensuring that those markets are functioning is a critical first step in ensuring access to finance at reasonable prices for small businesses and consumers.  Facilities for primary dealers (PDCF)2, commercial paper (CPFF)3 and the corporate credit facilities4 are helping us to achieve that goal. 

Let me share with you an overview of four important facilities where the Fed is working to more directly assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services. 

First, the Municipal Liquidity Facility5 was designed to help provide states, cities and counties with the funding to provide essential public services. The municipal securities market has been strained as investor concerns about funding the necessary response to the pandemic have grown. At the same time, states, cities, and counties are facing severe cash needs from the increase in spending related to the pandemic and the fall in and delay of tax revenue. The facility will increase funding available to eligible localities through notes that rely on proceeds in anticipation of tax revenues.  Proceeds can be used directly and to support smaller political subdivisions. This facility provides a form of bridge financing so that local governments fund programs even while they can delay taxes.

Second, the Main Street Lending Program6 enhances support for small and mid-sized businesses that were in good financial standing before the crisis.  In March and April, Fed staff conducted a series of outreach calls to 48 banking organizations and 20 mid-sized businesses to obtain their views on proposed structures for a Main Street Business Lending Program, and what we heard has been instrumental in continuing to shape the facility to meet those needs.

Third, the Term Asset-Backed Securities Loan Facility (TALF)7 supports issuance of new securities backed by student loans, auto loans, credit card loans, small business loans, and other debt. Support for asset backed markets ensures that new loans can be originated and sold, thus reducing borrowing costs and allowing people to finance cars, access credit through credit cards, issue commercial mortgages and fund purchases of equipment.

Finally, the Paycheck Protection Program Liquidity Facility (PPPLF)8 bolsters the effectiveness of the Small Business Administration's Paycheck Protection Program by supplying liquidity to participating financial institutions through two-year loans backed by PPP loans as collateral.   This program exemplifies our mission to help facilitate access to US government programs by ensuring that liquidity constraints do not stop the widest possible mix of financial institutions from extending these programs to borrowers.  

Considering the speed and scale of damage caused by the virus outbreak and measures to contain it, we are making all efforts to implement these facilities as fast as possible. At the same time, we are listening to the communities that we serve and hearing how difficult the economic shutdown has been for entrepreneurs and households, especially small businesses, those outside of the banking system and already underserved communities.

The Fed does not act alone in this – fiscal policy is a key partner in providing for the public health response and transferring income to those most affected by the outbreak.  Congress and the US Treasury are key partners mandating the facilities I described, supplying the financial support necessary for the scale of the facilities were are operating, and it is only with this fiscal support that we can ensure the success of key programs like the PPP.  

We recognize the differential impact of this public health crisis on many of our communities and the need to ensure that we offer as broad support as possible, and will continue to work tirelessly to support the US economy and the communities that we serve.

Thank you.