U.S. Government Non-Legislative COVID-19 Coronavirus Response Initiatives

March 27, 2020

Several federal agencies have announced various measures to help the United States respond to the economic dislocations from the COVID-19 coronavirus pandemic. This Dechert OnPoint summarizes several significant initiatives affecting financial institutions.

Federal Reserve

The Federal Reserve announced on March 23, 2020, a collection of new measures (some of which were enhancements of previously announced measures) aimed at using its “full range of tools” to address coronavirus-related disruption, noting that “aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.” The new measures are as follows:

  • The Federal Open Market Committee announced purchases of Treasury securities and agency mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”1 This marks an increase from a previously announced combined minimum $700 billion of Treasury securities and mortgage-backed securities. The Federal Open Market Committee also announced it would be expanding its range of purchases to include agency commercial mortgage-backed securities.

  • The Federal Reserve announced it would be establishing a Primary Market Corporate Credit Facility2 (PMCCF) for new bond and loan issuance.

  • The Federal Reserve announced it would be establishing a Secondary Market Corporate Credit Facility3 (SMCCF) to provide liquidity for outstanding corporate bonds by purchasing both direct issuances and certain U.S. ETFs investing in a broad range of investment-grade debt.

  • The Federal Reserve announced it would be establishing the Term Asset-Backed Securities Loan Facility4 (TALF) to support the flow of credit to consumers and businesses by “enabl[ing] the issuance of asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.”

  • The Department of the Treasury, using the Exchange Stabilization Fund, will provide a total of $30 billion in equity to the above facilities.

  • The Federal Reserve announced it would be accepting a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit, as eligible collateral for the Money Market Mutual Fund Liquidity Facility (MMLF).

  • The Federal Reserve announced it would be expanding the range of eligible securities under its Commercial Paper Funding Facility (CPFF)5 to include high-quality, tax-exempt commercial paper. In addition, the Federal Reserve announced it would be reducing the pricing of the facility. On March 25, 2020, the Federal Reserve Bank of New York released a set of frequently asked questions for the CPFF. 6

In addition to the steps above, the Federal Reserve indicated that it expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small- and-medium-sized businesses, complementing efforts by the SBA.

Further, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which passed in the Senate on March 25, 2020, appropriates up to $454 billion dollars of funding for the Federal Reserve programs and operations such as these.7 The CARES Act is the third of three legislative initiatives responding to the pandemic and is focused primarily on providing economic stimulus and relief from the effects of the pandemic.

Money Market Mutual Fund Liquidity Facility

In addition to the above information on the MMLF, the Federal Reserve made several announcements during the week of March 16, 2020 about the MMLF. The Federal Reserve had announced it would be establishing the MMLF on March 18, in response to growing concerns about extreme levels of illiquidity in money markets resulting from coronavirus-related uncertainty and the ability of money market mutual funds to meet significant investor demand for redemptions.8

On March 19, the Federal Reserve and other federal banking agencies released an interim final rule modifying certain applicable capital rules to exclude MMLF activities from a participating financial institution’s regulatory capital requirements.9

On March 20, the Federal Reserve Board announced that it would be expanding the MMLF to support crucial state and municipal money markets.10

On March 25, the Federal Reserve Board released an updated set of FAQs regarding the establishment and operation of the MMLF, following those issued earlier on March 21.11

Temporary U.S. Dollar Liquidity Arrangements with Other Central Banks

March 19, 2020, the Federal Reserve announced the establishment of temporary U.S. dollar liquidity arrangements (or “swap lines”), to be in place for at least six months, with the following central banks: Reserve Bank of Australia; the Banco Central do Brasil; the Danmarks Nationalbank (Denmark); the Bank of Korea; the Banco de Mexico; the Norges Bank (Norway); the Reserve Bank of New Zealand; the Monetary Authority of Singapore; and the Sveriges Riksbank (Sweden).12

The purpose of these swap lines is to “help lessen strains in global U.S. dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad.” The new swap lines are in addition to current standing U.S. dollar liquidity swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.

Primary Dealer Credit Facility

The Federal Reserve Board announced on March 17, 2020 that it is establishing a Primary Dealer Credit Facility (PDCF)13, to be made available on March 20, 2020. The PDCF will offer overnight and term funding with maturities up to 90 days, thereby allowing primary dealers14 to “support smooth market functioning and facilitate the availability of credit to businesses and households.”

Credit under this facility is extended in the form of a repurchase agreement transaction and, regardless of the duration of the loan, the rate paid on the loan will be “the same as the primary credit rate at the Federal Reserve Bank of New York in effect at the time the loan is made.” Such loans will be made with recourse beyond the collateral to the primary dealer entity itself. Normal tri-party fees will apply, but, in contrast to a similar facility made available between 2008-2010, there is no frequency-based fee.15

A key feature of the PDCF is the variety of collateral eligible to be pledged. In addition to collateral ordinarily available in open market operations, primary dealers under the PDCF may pledge: Treasury strips; a broad range of investment-grade debt securities; and equity securities (excluding ETFS, UITs, mutual funds, rights and warrants). Foreign currency-denominated securities are not presently eligible under the PDCF, nor is collateral that is not priced by the clearing bank.

FDIC/Federal Reserve Board/OCC

Encouraging Banks to Rely on Capital and Liquidity Buffers

On March 19, 2020, the FDIC, Federal Reserve Board and OCC issued two Financial Institution Letters16 relating to the Regulatory Capital Rule, each of which encourages banks to use their capital and liquidity buffers to manage COVID-19 coronavirus challenges.

First, the agencies jointly issued an interim final rule revising the definition of “eligible retained income” for all depository institutions, bank holding companies, and savings and loan holding companies subject to the agencies' capital rule. In its new definition, “eligible retained income” is the greater of:

  • A banking organization's net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and

  • The average of the banking organization's net income over the preceding four quarters.

This revision is “intended to strengthen the incentives for banking organizations to use their capital buffers as intended in adverse conditions and serve as a financial intermediary and source of credit to the economy,” and is expected to “reduce the likelihood that a banking organization is suddenly subject to abrupt and restrictive distribution limitations in a scenario of lower than expected capital levels, such as an economic disruption caused by COVID-19.” The Financial Institution Letter also suggests this new definition would make it easier for “S corporation banks to provide dividends to shareholders in order to meet their pass-through tax liabilities.”

Through a separate Financial Institution Letter, the agencies also released a set of Q&As17 in response to a prior statement on the use of capital and liquidity buffers, encouraging banks to rely on these buffers in response to COVID-19 coronavirus challenges. The agencies noted that “these capital and liquidity buffers were designed for this purpose to provide banking organizations with the means to support the economy in adverse situations and allow banking organization to continue to serve households and businesses,” although the agencies emphasized their expectation that banking organizations “manage their capital actions and liquidity risk prudently.”

Small Business Administration

Disaster Assistance Loan Criteria

On March 17, 2020, the SBA issued revised criteria for states and territories seeking an economic injury declaration related to COVID-19 coronavirus, allowing for a faster and easier qualification process for states seeking SBA disaster assistance, as well as expanded, state-wide access to SBA disaster assistance.18 Under the revised criteria, a state/territory need only certify that at least five small businesses within the state/territory have “suffered substantial economic injury, regardless of where those businesses are located, and any disaster assistance loans will be available state-wide following an economic injury declaration.

Under the Economic Injury Disaster Loan Program,19 the SBA will work directly with state Governors to provide targeted, low-interest loans to small businesses and non-profits that have been severely impacted by COVID-19 coronavirus, providing small businesses with working capital loans of up to $2 million to “help overcome the temporary loss of revenue they are experiencing.” The interest rate for these loans is 3.75% for small businesses and 2.75% for non-profits, with long-term repayments up to a maximum of 30 years, available in order to keep payments affordable (although terms are determined on a case-by-case basis, based upon each borrower’s ability to repay). This program is currently available to small business owners in all states.

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This Dechert OnPoint is not intended to be an exhaustive review of all applicable administrative measures taken in response to COVID-19 coronavirus concerns. Dechert is continuing to monitor developments in this area, both administrative and legislative. 


  1. See Federal Reserve Board, Federal Reserve announces extensive new measures to support the economy (Mar. 23, 2020).
  2. See Primary Market Corporate Credit Facility Term Sheet (Mar. 23, 2020).
  3. See Secondary Market Corporate Credit Facility Term Sheet (Mar. 23, 2020).
  4. See Term Asset-Backed Securities Loan Facility Term Sheet.
  5. See Commercial Paper Funding Facility Term Sheet (Mar. 23, 2020).
  6. See also Federal Reserve Bank of New York, FAQs: Commercial Paper Funding Facility (Mar. 25, 2020).
  7. See H.R. 748 (2020).
  8. See Federal Reserve Board, Federal Reserve Board broadens program of support for the flow of credit to households and businesses by establishing a Money Market Mutual Fund Liquidity Facility (MMLF) (Mar. 18, 2020).
  9. See Federal Reserve Board, Federal bank regulatory agencies issue interim final rule for Money Market Liquidity Facility (Mar. 19, 2020).
  10. See Federal Reserve Board, Federal Reserve Board expands its program of support for flow of credit to the economy by taking steps to enhance liquidity and functioning of crucial state andmunicipal money markets (Mar. 20, 2020).
  11. See Federal Reserve Board, Money Market Mutual Fund Liquidity Facility FAQs (Mar. 25, 2020); see also Money Market Mutual Fund Liquidity Facility Term Sheet (Mar. 23, 2020). 
  12. See Federal Reserve Board, Federal Reserve announces the establishment of temporary U.S. dollar liquidity arrangements with other central banks (Mar. 19, 2020); see also Swap Lines FAQs (Mar. 19, 2020).
  13. Federal Reserve Board, Federal Reserve Board announces establishment of a Primary Dealer Credit Facility (PDCF) to support the credit needs of households and businesses (Mar. 17, 2020); Term Sheet.
  14. Federal Reserve Bank of New York, List of Eligible Primary Dealers.
  15. See Federal Reserve Bank of New York, FAQs: Primary Dealer Credit Facility (Mar. 19, 2020).
  16. See FIL-20-2020 (Mar. 19, 2020). See FIL-21-2020 (Mar. 19, 2020).
  17. See Q&As on Statement Regarding the Use of Capital and Liquidity Buffers (Mar. 19, 2020).
  18. See Small Business Administration, SBA Updates Criteria on States for Requesting Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19) (Mar. 19, 2020).
  19. See Small Business Administration, Economic Injury Disaster Loan Program. 

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