Use of Federal Reserve Programs - 06/18/2020
Below we report on operational Fed programs, based on the Fed’s weekly H.4.1 release. Since last week, the Term Asset-Backed Securities Loan Facility has started operations; however, no funds have been extended so far. The ECB, BoE and BoJ further decreased their use of the swap lines established with the Fed in March.
Note on the Term Asset-Backed Securities Loan Facility and Treasury contributions
The Treasury announced on April 9 that it intended to use funds available under the CARES Act to purchase equity in special purpose vehicles established under Fed lending programs. On June 16, the Federal Reserve Bank of New York received the most recent contribution of $10 billion to TALF. In total, the Treasury has invested a total of $114 billion in six facilities. Per the facility agreements, 85% of the equity contributions to the CCF, CPFF, MLF and MSF have been invested in nonmarketable Treasury securities; $31.9 billion for the CCF, $8.5 billion for the CPFF, $14.9 billion for the MLF and $31.9 billion for the MSF. The funds contributed to TALF have not been invested yet.
For the MSF and MLF, the current balance largely reflects the purchase of Treasuries, rather than facility-specific assets. For the MLF, Treasuries purchased with equity constitute $14.9 billion out of $16 billion total. The facility began purchasing municipal notes on June 2. As of June 18, there are $195 billion outstanding across 10 facilities (Figure 1); $107 billion out of the total has been used to purchase targeted assets.
Note on Federal Reserve Swap lines
Over the last two weeks, the European Central Bank (ECB) significantly decreased its use of the USD swap line established with the Fed in March. The decrease is due to the expiration of two 84-day swaps the ECB entered on March 18 and March 25. As the contracts reached maturity on June 11, the ECB’s position decreased by over $100 billion. As of June 18 its total amount still outstanding is $45 billion. The position is expected to decrease further over the next week as another $16 billion swap matures. The Bank of England’s position decreased from $20 billion to $7.7 billion during the same time period as two of its large 84-day swaps expired.
The Bank of Japan (BoJ) also decreased its position in the last week. It currently stands at $171 billion, down from $212 billion last week after a $73 billion agreement matured on June 18. This was the second-largest swap agreement the Federal Reserve entered during the current crisis. The largest was a $75 billion swap with the ECB that expired on June 11.
Liquidity Swap Lines
The USD swap lines are bilateral agreements between the Fed and foreign central banks. They allow foreign central banks to exchange domestic currency for US dollars. The Fed currently maintains swap line agreements with 14 central banks.
Money Market Mutual Fund Liquidity Facility
The MMLF allows the Fed to fund the purchase of money market mutual fund assets. The program is established under section 13(3) of the Federal Reserve Act. The Fed reported that the U.S. Treasury, to date, has provided credit protection of $1.5 billion to the Money Market Mutual Fund Liquidity Facility.
Discount Window
The DW is a standing facility that allows the Fed to provide collateralized loans to depository institutions.
Primary Dealer Credit Facility
The PDCF allows the Fed to extend collateralized loans to primary dealers. The facility was established under section 13(3).
Paycheck Protection Program Liquidity Facility
The PPPLF allows the Fed to provide financial institutions with liquidity backed by loans to small and medium-sized businesses extended under the federal government’s Paycheck Protection Program and guaranteed by the Small Business Administration. The Program was established under section 13(3).
Commercial Paper Funding Facility
The CPFF provides a liquidity backstop to issuers of commercial paper and was also established under section 13(3). It is operated by the FRBNY through a special purpose vehicle, the Commercial Paper Funding Facility II LLC (CPFF LLC). The Treasury has made an equity investment of $10 billion in CPFF LLC.
Primary and Secondary Market Corporate Credit Facilities
The PMCCF and SMCCF were set up under section 13(3) to support credit to employers through purchases of newly issued bonds and support market liquidity for outstanding corporate bonds. These facilities operate through a special purpose vehicle, the Corporate Credit Facilities LLC (CCF LLC). The Treasury has made an equity investment of $37.5 billion in CCF LLC.
Municipal Liquidity Facility
The MLF provides liquidity to states, counties and cities. The facility was set up to purchase up to $500 billion of short-term notes and was established under section 13(3). The Treasury has made an equity investment of $17.5 billion in MLF LLC.
Main Street Lending Programs
The MSF is established under section 13(3) to provide loans to SMEs. The program operates through three facilities: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF). The loans are extended through a special purpose vehicle, the Main Street Facilities LLC (MSF LLC), established by the Federal Reserve Bank of Boston.
Term Asset-Backed Securities Loan Facility
The TALF is established under section 13(3) to provide liquidity guaranteed by asset-back securities (ABS). Under the facility the Federal Reserve lends to holders of certain AAA-rated ABS. The facility operates through a special purpose vehicle to extend its loans, the Term Asset-Backed Securities Loan Facility II LLC (TAF II LLC).