The U.S. Federal Reserve on Wednesday announced a new $2.3 trillion package of measures to support the coronavirus-battered economy, including a $600 billion loan program for small and mid-size businesses.
In addition to launching the Main Street Lending Program, the Fed is expanding its backstops for the corporate debt market and providing liquidity to financial institutions that are lending money to small businesses under the Paycheck Protection Program (PPP).
“Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of virus,” Fed Chair Jerome Powell said in a news release. “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.”
According to The Wall Street Journal, the latest measures “take the Fed well beyond the lender-of-last-resort functions it played in 2008 to prevent a financial panic from deepening the economic downturn and rely on hundreds of billions of dollars in Treasury money that Congress made available in the recent $2 trillion economic-relief legislation.”
The central bank had promised last month to set up a program to support small business loans. Under the terms announced on Wednesday, businesses employing up to 10,000 workers or with revenues of less than $2.5 billion will be eligible for four-year loans, with principal and interest payments deferred for one year.
The loans will be originated by banks, and borrowers will have to pay between 2.5% to 4% above the secured overnight funding rate, which stands at zero.
Firms that have borrowed from the PPP fund can also take out Main Street loans.
On the corporate debt front, the Fed said collateral for its Term Asset-Backed Securities Loan Facility will now include junk-rated debt as long as the debt was rated as investment-grade a day before the TALF program was first announced on March 23.
Junk bonds were excluded from TALF when it was used after the 2008 financial crisis to support consumer and business credit markets.
The Fed also announced a new Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities that have cash-flow stresses caused by the coronavirus pandemic. The U.S. Treasury will provide $35 billion of credit protection to the Federal Reserve for the MLF using funds appropriated by the CARES Act.