A glossary of the Federal Reserve's toolbox for the COVID-19 crisis
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The novel coronavirus thrust the U.S. economy into the deepest and quickest recession in recent memory, tasking fiscal and monetary policymakers with the unprecedented challenge of keeping businesses and households afloat.
Congress authorized more than $4 trillion in coronavirus-related spending and the nation's central bank, the Federal Reserve, committed to using all of its tools to “support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.”
Beginning in March 2020, the Fed swiftly slashed interest rates to zero, re-launched an aggressive quantitative easing program, and unleashed an alphabet soup of liquidity facilities to support the flow of credit in several markets. The central bank did so to ease credit conditions and keep businesses alive through the virus-induced shutdown.
In total, Fed watchers have referred to the central bank’s measures as “bazookas,” even “going nuclear.”
The Fed got creative with its tools, dispelling any concern that the central bank was beholden to its 2008 playbook. For example, the Fed entered the businesses of offering loans through its Main Street Lending Program, an effort to get credit to small- and mid-sized businesses squeezed by shutdowns.
And for the first time, the Fed tackled financing pressures in the municipal debt market (through the MMLF, CPFF, and MLF) and the corporate debt market (through the PMCCF, SMCCF, CPFF).
Several of the Fed’s emergency loan programs were backed by money appropriated through the CARES Act and delegated by the U.S. Treasury. In an effort to provide transparency in its role as a lender of last resort, the Fed published details (participant names, amounts borrowed, interest rates charged, and costs and fees) on a monthly basis for each facility opened with Congressionally-appropriated funds.
Through it all, the Fed's balance sheet ballooned, expanding well past $8 trillion.
Here’s a full breakdown of all the tools (as of September 15, 2021) announced by the Fed as it battled the economic impact of the coronavirus:
Near-zero interest rates
Date announced: March 3, March 15 (2020)
Technical details: Interest rates are the primary tool for monetary policy. The Fed broadly steers rates to support lending when the economy is in need (by lowering rates) and pulls back on lending when the economy may be running too hot (by raising rates).
The Fed began raising rates in 2015 amid concerns that low rates were supporting rising inflation. But the Fed reversed course in 2019 as trade tensions flared up between the U.S. and China.
Coronavirus concerns pushed the Fed to cut rates by 50 basis points on March 3, 2020. Almost two weeks later, the Fed slashed its interest rate target to between zero and 0.25%. Throughout the pandemic, the Fed steered clear of negative interest rates, which make it costlier to hold onto money than to lend it out.
Fed forecasts in September 2020 signaled that the Fed was likely to keep interest rates at near-zero at least through the end of 2023, although the economic recovery spurred some policymakers in 2021 to pull forward their expectations for the timing of a rate hike.
How it impacts Main Street: The Fed’s interest rate target concerns overnight bank lending, so interest rates for the average household and business will still be above zero. But for businesses, lower interest rates mean cheaper borrowing costs to invest back into the business and pay workers. For individual households, lower interest rates translate to lower return on bank deposits but generally cheaper rates to finance or refinance auto loans or mortgages.
Quantitative easing (QE)
Date announced: March 15, March 23, June 10, Dec. 16 (2020)
Technical details: In mid-March 2020, the Fed said it would purchase at least $500 billion of U.S. Treasuries and $200 billion of agency mortgage-backed securities “over coming months.” On March 23, 2020, the Fed announced that it was suspending those limits and would buy assets “in the amounts needed” to support the economy. The Fed also expanded the scope of those purchases to include agency commercial mortgage-backed securities. Through QE, the Fed is directly intervening as its own counterparty in the Treasury and agency MBS markets.
The Fed began slowing its pace of purchases in April. But in its June 2020 Federal Open Market Committee meeting, the central bank committed to purchases at a pace of “at least” $80 billion per month for Treasuries and about $40 billion per month for mortgage-backed securities. In December 2020, the Fed committed to keeping its aggressive pace of quantitative easing until “substantial further progress” was made on the economic recovery.
In November 2021, the Fed began slowing the pace of those purchases. In December 2021, the Fed sped up the taper process with the goal of bringing QE to a full stop by March 2022.
How it impacts Main Street: QE is an unconventional monetary policy tool that eats up trillions in assets using central bank-printed money, effectively injecting stimulus into the economy during times of economic pullback.
In the beginning of the pandemic, the Fed insisted that its open market purchases were being done to ensure that financial markets had the liquidity they needed to function properly. But later into 2020, the Fed changed its language to add that it saw its quantitative easing program as a way to transmit accommodative policy into the economy, complementing its already near-zero interest rates.
Repurchase agreements (Repo)
Date announced: September 2019.
Technical details: As the plumbing of the financial system, the repo market provides financing for banks and broker-dealers at the center of the economy, allowing the levered institutions to cover positions on their balance sheet by lending sums of cash to one another.
The pandemic-induced shutdown raised concerns that the money center firms would not be willing to offer cash to one another, spurring the New York Fed to step in as its own provider of liquidity.
The New York Fed was already offering repurchase agreements since September 2019 to alleviate pressures in the market for interbank short-term loans. But it increased the scale of the repos available in the depths of the pandemic. At one point, the Fed was offering over $5 trillion in total repo agreements (as short as overnight and as long as three months), but the uptake was not anywhere close to that eye-popping figure. The Fed announced the creation of a "standing repo facility" in July 2021, acknowledging the need to have a money market backstop at the ready.
As the economy began normalizing through the vaccine rollout, the New York Fed began paring back the size and duration of its repo operations.
The flood of cash would eventually push firms to turn to "reverse repo" operations, also offered by the New York Fed, to allow firms to park cash at the central bank.
How it impacts Main Street: Stabilizing repo markets also supported money market funds that many Americans are invested in, since the funds often hold some proportion of their assets in daily liquid assets like overnight repos. The NY Fed’s repo operations were also designed to ensure that banks could find short-term financing — all in the broader goal of maintaining confidence for those firms to provide credit to customers and businesses.
U.S. dollar swap lines
Date announced: March 15, March 19, March 20 (2020)
Date launched: March 16, 2020 (effective through December 31, 2021)
Technical details: Companies around the world disrupted by the novel coronavirus were loading up on U.S. dollars to cover currency hedge positions. As a result, the Fed announced U.S. dollar swap lines with five other major central banks (including the European Central Bank and Bank of Japan) to ensure the availability of the world’s reserve currency.
On March 19, the Fed expanded its U.S. dollar swap lines with nine other central banks and on March 20 the Fed increased the frequency of its previously-announced swaps with the five major central banks.
In July, the Fed said it would continue to leave the swap lines available through March 31, 2021. In December, the Fed again extended the end date of the swap lines, to September 30, 2021. In June 2021, the Fed yet again extended the end date, to December 31, 2021.
How it impacts Main Street: The U.S. dollar strengthened against many global currencies during the pandemic. But with international travel almost all but cut off during 2020, most Americans did not see any direct effects of the Fed’s efforts to provide liquidity to foreign exchange markets. But broadly, preventing the world from running out of U.S. dollars was designed to ensure that an already exposed U.S. economy wasn't harmed further by dollar shortage-induced financial collapses in other countries.
Tapping into capital and liquidity buffers
Date announced: March 15, March 23 (2020)
Technical details: After the 2008 financial crisis, Congress passed the Dodd-Frank Act and required banking regulators to increase the amount of capital and liquidity held at U.S. banks in case another crisis struck. To withstand fluctuations, most banks hold capital and liquidity buffers well above their statutory requirements, but the Fed on March 15 encouraged banks to tap into those buffers to lend out into the economy.
The Fed also lowered reserve requirements to zero and on March 23 tweaked a bank capital regulation to more loosely allow banks to lend out retained income. In concert with liquidity facilities concerning money market instruments (MMMLF) and Paycheck Protection Program loans (PPPLF), the Fed also tweaked the calculation of banks’ liquidity coverage ratios to account for usage of these facilities.
The largest U.S. banks were also given temporary reprieve from a capital regulation known as the supplementary leverage ratio, a post-crisis regulation designed to ensure that banks are able to absorb any losses stemming from financial or economic shocks. The Fed allowed the relief to expire on March 31, 2021.
How it impacts Main Street: Bank capital and liquidity regulations are a tightrope; requirements that are too low could lead to fragile balance sheets but requirements that are too high could prevent a bank from lending into an economy in desperate need of more activity.
The Fed's actions, reinforced by a belief within the institution that bank capital and liquidity was in a better place that it was before the Great Financial Crisis, encouraged the nation's banks to use their capital to support businesses and households.
Discount window
Date announced: March 15, 2020
Technical details: Through the discount window, the Fed can directly offer short-term loans to banks. On March 16, 2020, the Fed lowered the interest rate on discount window loans to 0.25%. The Fed also joined other major banking regulators in explicitly encouraging banks to take advantage of the loans, which the eight largest U.S. banks did that same day.
How it impacts Main Street: Historically, banks have been reluctant to access the discount window because of the public perception of needing a loan from the Fed, also known as the “lender of last resort.” In the Great Financial Crisis, banks accessed the discount window but feared that depositors were going to trigger a run on the bank because of the “stigma” associated with the window.
During the pandemic, the banks accessed the discount window, perhaps as a demonstration to depositors and market participants that using it is not necessarily a sign of bank insolvency or severe stress.
Stress Test and Sensitivity Analysis
Date announced: June 25, Dec. 18 (2020), June 24 (2021)
Technical details: After the Great Financial Crisis, the Fed required the largest banks to undergo stress tests that model the impact of hypothetical economic downturns on their balance sheets. The Fed was in the middle of its 2020 tests when the coronavirus hit, presenting a real-world scenario that was even worse than the stress test’s “severely adverse” scenario.
The Fed therefore ran a last-minute “sensitivity” analysis modeling the impact to bank capital under V, U, and W-shaped recoveries. Although the central bank did not report the analysis at a firm level, the Fed said that “several” of the 33 largest banks remained above minimum capital requirements under the scenarios.
The Fed required the firms to re-submit their capital plans (detailing dividend and stock buybacks over the coming quarters). For the third quarter of 2020, the Fed capped dividend payments and restricted any share buybacks. The Fed extended those limitations into the fourth quarter as well.
In the second round of stress tests in the winter of 2020, the Fed found that banks continued to have "strong capital levels" and allowed banks to pay dividends and make share repurchases - as long as those distributions that do not total more than an average of the bank’s net income over the prior year.
After the Fed's 2021 round of stress tests, the regulator reiterated that the largest banks appeared to have "strong capital levels" and said lifted the COVID-era dividend and buyback restrictions on July 1, 2021.
How it impacts Main Street: Bank capital is a critical measure of a financial institution’s ability to not only lend to borrowers but absorb losses if the economy turns sour. Stress tests are the Fed’s normal check-ups on the health of the banking industry, but the coronavirus presented its own unique challenges.
By briefly restricting dividends and buybacks, the central bank sought to ensure that firms were retaining capital — as opposed to paying it out to shareholders. But some, such as Fed Governor Lael Brainard, preferred that the Fed ban dividends entirely instead of merely cap the amount that banks can pay out.
Commercial Paper Funding Facility (CPFF)*
Date announced: March 17, March 23, July 23, Nov. 30 (2020)
Date launched: April 14, 2020
Date ended: March 31, 2021
Technical details: The Fed announced that it would directly finance eligible commercial paper, a common form of short-term corporate debt. Although the Fed does not have the ability to add commercial paper directly to its balance sheet, the central bank established a special purpose vehicle (SPV) with $10 billion of equity investment from the U.S. Treasury to buy high-rated, three-month commercial paper.
On March 23, the Fed expanded the CPFF to include some short-term municipal bonds as well.
In November, Treasury Secretary Steven Mnuchin authorized a 90-day extension of the CPFF.
The facility stopped purchasing commercial paper on March 31, 2021.
How it impacts Main Street: Businesses forced to shut down or significantly scale back their operations were scrambling to find financing as the U.S. tried to flatten the COVID curve.
Fearing that counterparties would become less willing to buy corporate debt, the Fed stepped in by snatching up commercial paper itself. By alleviating those funding pressures, the Fed sought to keep businesses alive — which in turn would preserve the employment of all the people working for those businesses.
Primary Dealer Credit Facility (PDCF)*
Date announced: March 17, Nov. 30 (2020)
Date launched: March 20, 2020
Date ended: March 31, 2021
Technical details: The PDCF offered short-term (up to 90-day) loans to primary dealers, or firms that serve as intermediaries between the government and the market. To get access to the loans, the dealers were able to offer up a wide variety of different types of collateral (investment grade corporate debt, commercial paper, municipal debt, mortgage-backed securities, asset-backed securities, and even some stocks). Exchange-traded funds and mutual funds were not eligible collateral under the PDCF.
In November, Treasury Secretary Steven Mnuchin authorized a 90-day extension of the PDCF).
The PDCF ceased extending credit on March 31, 2021.
How it impacts Main Street: The PDCF allowed those dealers at the heart of the financial system to temporarily liquidate some assets that they may have been unable to sell in the open market. Without assets trapped on the balance sheet, those primary dealers would then have had the liquidity to lend to businesses disrupted by the virus.
Money Market Mutual Fund Liquidity Facility (MMLF)*
Date announced: March 18, March 20, Nov. 30 (2020)
Date launched: March 23, 2020
Date ended: March 31, 2021
Technical details: Much like the PDCF, the MMLF offered short-term loans, but to all U.S. banks. Under the program, banks offered up collateral in the form of U.S. Treasuries, asset-backed commercial paper, and some unsecured commercial paper. The MMLF was similar to the crisis-era Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), but the Fed tweaked the terms of the facility to take on short-term (with maturities of a year or less) municipal debt as eligible collateral as well.
The Treasury provided $10 billion of credit protection to the facility.
In November, Treasury Secretary Steven Mnuchin authorized a 90-day extension of the MMLF.
The MMLF ceased extending credit on March 31, 2021.
How it impacts Main Street: The expansion of the MMLF to municipal debt was a new move. With businesses closed, local municipalities and states were at risk of being unable to collect pre-pandemic levels of tax revenue. As a result, municipal debt markets were drying up as bond buyers worried about the economic spillover of the virus onto the credit health of American towns, cities, and states. The Fed was able to retrofit the MMLF to the muni debt market in an attempt to maintain the flow of financing for localities and their public utilities.
Primary Market Corporate Credit Facility (PMCCF)*
Date announced: March 23, April 9, June 29 (2020)
Date launched: June 29, 2020
Date ended: Dec. 31, 2020
Technical details: The PMCCF sought to purchase investment-grade corporate bonds (with maturities of four years or less) directly from eligible issuers and offer them a loan. Like the CPFF, the facility had the support of billions of dollars from the U.S. Treasury and held the bonds in an SPV. Companies accessing the PMCCF were to pay the Fed interest on the loan, but would be allowed to hold off on interest payments for up to six months (during which they would not be allowed to pay dividends or buyback shares).
On April 9, 2020, the Treasury expanded its support from $10 billion to $50 billion as the Fed expanded the scope of the program to cover “fallen angel” corporate debt with below investment-grade ratings of BB-/Ba3.
The program was new and not a part of the Fed's crisis response to the 2008 financial meltdown.
No transactions were made while the PMCCF was operational; the Fed instead opted to intervene in the corporate bond market via the Secondary Market Corporate Credit Facility (SMCCF).
At the direction of the U.S. Treasury, the PMCCF and the SMCCF stopped actively buying new assets on December 31, 2020, by which point the programs had made aggregate purchases of about $14.1 billion. As of August 31, 2021, all of the holdings under both facilities were sold or matured.
How it impacted Main Street: Companies with weaker credit ratings could not access the CPFF, but strains in the investment-grade and high-yield markets raised concerns that those with a higher risk of default were in danger. The PMCCF and SMCCF sought to backstop those markets and allow companies to find financing and keep their employees on payroll through the business stoppages.
Secondary Market Corporate Credit Facility (SMCCF)*
Date announced: March 23, April 9, June 15 (2020)
Date launched: May 12, 2020
Date ended: Dec. 31, 2020
Technical details: As the name implies, the SMCCF provided a backstop in the secondary market for investment-grade and some high-yield corporate debt targeted by the PMCCF.
The facility included a separate SPV with another $10 billion from the U.S. Treasury, which was expanded to $25 billion on April 9. The SMCCF also took on some U.S.-listed ETFs with “broad exposure” to the market for U.S. investment-grade and high-yield corporate bonds.
After focusing its initial purchases in ETFs, the facility was expanded on June 15, 2020 to include secondary purchases of individual corporate bonds for the purposes of creating a “broad, diversified market index” of bonds that are eligible for the program. Purchases covered bonds with remaining maturities of 5 years or less.
The SMCCF was also a new tool.
At the direction of the U.S. Treasury, the PMCCF and the SMCCF stopped actively buying new assets on December 31, by which point the programs had made aggregate purchases of about $14.1 billion.
On June 2, 2021, the Fed announced that it would begin selling that portfolio. As of August 31, 2021, all of the holdings under both facilities were sold or matured.
How it impacted Main Street: Whereas the PMCCF had no uptake, the SMCCF served as the Fed's main channel for providing liquidity to the investment-grade and some high-yield corporate debt markets.
In tandem, both facilities were capable of providing up to $750 billion in support to credit markets.
The roughly $14 billion in SMCCF purchases were a drop in the bucket compared to that $750 billion ceiling, but the goal was to signal the Fed's power in supporting market liquidity. In doing so, the Fed hoped that companies would continue to access capital to keep themselves (and the employees on their payrolls) afloat.
Term Asset-Backed Securities Loan Facility (TALF)*
Date announced: March 23, April 9, May 12, July 23 (2020)
Date ended: Dec. 31, 2020
Technical details: The TALF was deployed in the financial crisis and was again deployed in 2020 to provide loans to U.S. companies in exchange for collateral in the form of asset-backed securities (with exposure to consumer credit like student loans, car loans, credit card receivables, and small business loans). The facility offered the loans to U.S. companies via primary dealers, and was supported through an SPV with $10 billion of equity investment from the U.S. Treasury.
On April 9, the Fed expanded the TALF to also accept collateral with underlying credit exposures to leveraged loans (such as collateralized loan obligations) and commercial mortgages. On May 12, the Fed offered more specifics on the types of CLOs it would accept.
At the direction of the U.S. Treasury, the TALF stopped actively buying new assets on December 31, by which point the program had made aggregate purchases of about $3.5 billion.
How it impacts Main Street: Asset-backed securities provide liquidity to the underlying availability of consumer credit categories familiar to most Americans. The TALF program was aimed at giving market-makers the confidence to package loans which, in theory, should have given underwriters the confidence to extend credit to businesses and household through the crisis.
Foreign and International Monetary Authority (FIMA) Repo Facility
Date announced: March 31, 2020. Standing FIMA repo facility announced July 28, 2021.
Date launched: April 6, 2020 (effective through September 30, 2021).
Technical details: The Fed’s U.S. dollar swap arrangements are only available to 14 central banks, but the repo facility offers U.S. dollars to any of the over 200 foreign and international monetary authorities (FIMA) that have accounts at the New York Fed. Through the FIMA repo facility, other central banks and monetary authorities looking to liquidate their positions in U.S. Treasuries will be able to temporarily swap those securities for U.S. dollars.
The program was originally set to expire in the beginning of October but in July the Fed extended the facility through March 31, 2021. The Fed in December again extended the facility end date, to September 30, 2021.
In July 2021, the Fed said it would make its dollar swap arrangements available on a standing basis, through a facility that would offer overnight repurchase agreements at a rate of 0.25% with a per counterparty limit of $60 billion.
How it impacts Main Street: The FIMA repo facility is aimed at supplying U.S. dollars to the world as global investors and companies hunker down in greenbacks. Like the U.S. dollar swap arrangements, the FIMA repo facility is designed to avoid any foreign market strains resulting from a dollar shortage, which could spillover into the U.S. if not properly addressed.
Paycheck Protection Program Liquidity Facility (PPPLF)*
Date announced: April 6, April 30, Nov. 30 (2020), March 8 (2021)
Date launched: April 16, 2020
Date ended: July 30, 2021
Technical details: The Federal Reserve committed to backstopping the $350 billion Paycheck Protection Program authorized by Congress. On April 6, the Fed released a two-sentence statement committing the central bank to providing financing to PPP lenders. Three days later, the Fed clarified that the facility will offer credit to any PPP lender and take on those PPP loans as collateral at face value.
As of April 30, the Fed expanded participation in the program to allow non-traditional lenders, like community development financial institutions and members of the Farm Credit System, to access liquidity as well.
In November, Treasury Secretary Steven Mnuchin authorized a 90-day extension of the PPPLF. In March 2021, the Fed extended the program to run through June 30, 2021, which was later extended one final time to an end date of July 30, 2021.
How it impacts Main Street: The PPP loans were set at a 1% interest rate, but banks say the rate is below “break even” for them to originate and service. By taking on the loans itself, the Fed’s PPP facility hoped to give banks a little more breathing room to originate the PPP loans that Main Street businesses desperately need to weather the coronavirus-induced shut downs.
Main Street New Loan Facility (MSNLF)*
Date announced: March 23, April 9, April 30, June 8, Oct. 30 (2020)
Date launched: June 15, 2020
Date ended: Jan. 8, 2021
Technical details: The MSNLF was one of three facilities within the Fed’s Main Street Lending program and originally sought to offer borrowers new four-year loans of at least $500,000. Pricing for all Main Street loans were set at LIBOR plus 3%.
On April 9, 2020, the Fed announced that it would support $600 billion in loans to businesses with fewer than 10,000 employees or up to $2.5 billion in annual revenues. U.S. lenders would underwrite the loans, hold 5% of the loan on its books, and sell the remaining 95% to an SPV backed by $75 billion in equity from the U.S. Treasury.
On April 30, 2020, the Fed expanded the scope of the facility to change the employee threshold to 15,000 and the revenue threshold to $5 billion. The updated terms stated that the maximum loan size was the lesser of $25 million or four times 2019 adjusted EBITDA.
On June 8, 2020, the Fed lowered the minimum to $250,000 and expanded the loan term to five years. The Fed also raised the absolute maximum loan size to $35 million. MSNLF loans, in addition to all other Main Street loans, allowed borrowers to defer principal payments for the first two years.
On October 30, 2020, the Fed again lowered the minimum loan size, to $100,000.
On January 8, 2021, the Fed closed down all the Main Street programs to new loans, at the direction of the U.S. Treasury. As of closing, the programs had purchased an estimated total of $16.6 billion in loans.
How it impacts Main Street: The Small Business Administration’s Paycheck Protection Program targeted companies with fewer than 500 employees, but businesses larger than that did not have a lifeline. The Main Street Lending Facility allowed businesses to get loans as long as they “make reasonable efforts” to retain employees.
There was no minimum size for eligible companies, and businesses that took a PPP loan remained eligible for any type of Main Street loan.
Main Street Priority Loan Facility (MSPLF)*
Date announced: March 23, April 30, June 8, Oct. 30 (2020)
Date launched: June 15, 2020
Date ended: Jan. 8, 2021
Technical details: The Fed revised the the terms of its Main Street Lending Program on April 30 and created the MSPLF to cover larger, slightly riskier loans. Loans under the MSPLF were allowed to be a little larger than those originated under the MSNLF, with a ceiling as large as six times 2019 adjusted EBITDA.
Originally, the Fed sought to require lenders to hold onto a slightly larger slice of the loan (15%) to cover the higher risk.
On June 8, 2020, the Fed walked that retention requirement back, only requiring lenders to hold onto 5% of the loan (like the MSNLF and MSELF). The Fed also raised the absolute ceiling to $50 million.
The same profile of borrowers was applicable for the MSPLF: under 15,000 employees and $5 billion in revenue.
On January 8, 2021, the Fed closed down all the Main Street programs to new loans, at the direction of the U.S. Treasury. As of closing, the programs had purchased an estimated total of $16.6 billion in loans.
How it impacts Main Street: Like the MSNLF, the MSPLF hoped to keep larger businesses whole through the COVID-19 crisis.
The MSPLF was designed to appeal to riskier businesses that, for example, may have had low earnings but a need for a large loan. Because the EBITDA requirement would have allowed for a more highly levered loan relative to the MSNLF, a priority loan was senior to other debt carried by the borrower (a requirement not part of loans under the MSNLF).
Main Street Expanded Loan Facility (MSELF)*
Date announced: March 23, April 9, April 30, June 8, Oct. 30 (2020)
Date launched: June 15, 2020
Date ended: Jan. 8, 2021
Technical details: The MSELF was the third program in the Main Street Lending Facility. It differs in that it allowed banks to upsize the tranche of an existing loan to terms that would allow them to fund the loan from the $600 billion pool.
Borrowers wanting a loan (of a minimum size of $10 million) faced the same eligibility requirements: having fewer than 15,000 employees or up to $5 billion in annual revenues.
Loans under the MSELF could be as large as $200 million, but no company could take out a loan that was larger than six times its EBITDA when adding outstanding and undrawn debt (like the MSPLF). Lenders were required to hold onto 5% of the loan risk.
On June 8, the Fed expanded the program to raise the maximum loan limit under the MSELF to $300 million.
On January 8, the Fed closed down all the Main Street programs to new loans, at the direction of the U.S. Treasury. As of closing, the programs had purchased an estimated total of $16.6 billion in loans.
How it impacts Main Street: Whereas the MSNLF covered brand new loans to borrowers that may not have had an outstanding loan, the MSELF allowed borrowers to work with their bank lender to restructure existing loans. The MSELF offered large borrowers massive loans of up to $300 million. Like the MSPLF loans, the expanded loans were senior in debt to all other debt carried by the borrower.
Nonprofit Organization New Loan Facility (NONLF)*
Date announced: June 15, July 17, Oct. 30 (2020)
Date launched: Sept. 4, 2020
Date ended: Jan. 8, 2021
Technical details: On June 15, 2020, the Fed proposed a carveout of the Main Street program that would make eligible any 501(c)(3) or 501(c)(19) organization with between 50 and 15,000 employees. Among the requirements: the applicant’s 2019 revenues had to be less than $5 billion and the organization had to be at least five years old.
On July 17, 2020, the Fed finalized the facility and widened the eligibility to allow nonprofits as small as 10 employees. It also broadly loosened standards to cover slightly more indebted nonprofits than in the original proposal.
The terms of the loans were modeled off of the Main Street loans. The minimum loan size for the NONLF was $250,000 and the maximum size was $35 million or the borrower’s average 2019 quarterly revenue. Similarly, the loans were five years in term and allowed the borrower to defer principal payments for two years, interest payments for one year, and were priced at LIBOR plus 3%.
The “new” loan program allowed lenders to originate a fresh line of credit, 95% of which the lender can shop to the Fed’s facility. The facility was backed from the same pool of $75 billion of equity from the U.S. Treasury dedicated to the Main Street program.
On October 30, 2020, the Fed lowered the minimum loan size available via the program, to $100,000.
On January 8, 2021, the Fed closed down all the Main Street programs to new loans, at the direction of the U.S. Treasury. As of closing, the programs had purchased an estimated total of $16.6 billion in loans.
How it impacts Main Street: As the Fed was designing its Main Street Lending Program, some Fed officials acknowledged that the facility would not meet the needs of nonprofits like universities and charitable organizations facing funding gaps amid the COVID-19 crisis.
Fed Chairman Jerome Powell noted that nonprofits provide essential services like skills development, which is why the central bank felt the need to “help them through this difficult time.”
Nonprofit Organization Expanded Loan Facility (NOELF)*
Date announced: June 15, July 17, Oct. 30 (2020)
Date launched: Sept. 4, 2020
Date ended: Jan. 8, 2021
Technical details: The NOELF offered loans of larger size than the NONLF, allowing a borrower to take out as much as $300 million (with a minimum loan size of $10 million). The loan was an upsized tranche of an existing loan and was senior in repayment priority to other debt.
Although the loan sizes under the NOELF were much larger, the nation’s largest nonprofits and universities were still at risk of being ineligible. As proposed, the facility did not cover organizations with more than 30% of its revenues coming from donations.
In its finalized term sheet, the Fed loosened the donations threshold and made eligible nonprofits with up to 40% of its revenues coming from donations.
Any organization with an endowment larger than $3 billion (requirements that also applied to the NONLF) were not eligible. Borrowers still faced a tailored maximum of their average 2019 quarterly revenue.
Otherwise, loans under the NOELF had the same terms as all the other Main Street facilities (i.e. five-year term, deferred principal payments for two years, interest payments for one year, pricing at LIBOR plus 3%, and lender retention of 5%).
On January 8, 2021, the Fed closed down all the Main Street programs to new loans, at the direction of the U.S. Treasury. As of closing, the programs had purchased an estimated total of $16.6 billion in loans.
How it impacts Main Street: Like the MSELF, the NOELF allowed borrowers to work with their bank lender to restructure their existing loans. The NOELF offered larger nonprofit borrowers, such as mid-sized universities or recognizable charitable organizations, to bridge about a quarter’s worth of revenue.
However, the country’s largest nonprofits were likely not covered due to the endowment and donations-as-a-percentage-of-revenue limits.
Municipal Liquidity Facility (MLF)*
Date announced: April 9, April 27, June 3, August 11 (2020)
Date launched: May 26, 2020
Date ended: Dec. 31, 2020
Technical details: Through an SPV backed by $35 billion of investment from the Treasury, the Fed offered loans to state and local governments by buying short-term municipal debt (with maturity of less than two years) directly from the issuers. U.S. states, cities with more than one million residents, and counties with more than two million residents were eligible for the program, which was designed to support up to $500 billion in loans.
On April 27, 2020, the Fed lowered the bar on qualification to include cities with at least 250,000 residents and counties with at least 500,000 residents. The Fed also expanded the eligible maturity to three years, but municipalities had to be rated at least investment-grade to participate. The Fed released pricing details on the facility on May 11, which fixed interest rates at an overnight index rate plus a spread based on the issuer’s credit rating.
On June 3, 2020, the Fed said it would allow state governors to designate two issuers (such as public transit systems or airports) for access to the facility. The Fed also expanded the facility to allow states without large counties or cities to designate up to two cities or counties for eligibility to get MLF loans.
After having spent its first two months of existence with only one loan, the Fed on August 11, 2020 lowered the pricing of its loans by 50 basis points (for tax-exempt eligible notes).
At the direction of the U.S. Treasury, the MLF stopped actively purchasing new municipal securities on December 31, 2020, by which point the program had made aggregate purchases of about $6.3 billion. Only two borrowers tapped the program: the state of Illinois and New York’s Metropolitan Transportation Authority.
How it impacts Main Street: Similar to the expanded scope of the MMLF, the municipal liquidity facility hoped to provide a lifeline to local and state governments facing dramatic funding gaps with tax revenue collections essentially frozen. Because local and state governments were the key providers of critical services like unemployment insurance and sanitation, the Fed sought to prevent municipalities from defaulting by offering to take on their debt if counter-parties were unavailable.
(* denotes facilities opened by the Fed with approval from the U.S. Treasury under Section 13(3) of the Federal Reserve Act)
This article has been updated, it was originally published on May 14, 2020.
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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