Yale School of Management

Program on Financial Stability

Improving our understanding and management of systemic risk.

Use of Federal Reserve Programs - 09/23/2020

September 25, 2020
: By Junko Oguri

Below we report on operational Fed programs, based on the Fed’s weekly H.4.1 release. The use of lending facilities has declined to $97.4 billion. The use of swaps also continued to decline, and is now at 7% of the peak amount.  

As of September 23, the Fed’s liquidity programs had $97.4 billion in outstanding loans. The total outstanding has not changed much compared to $98.4 billion, the outstanding amount at the end of August, the last time we reported the usage (see the post here).

Figure 1 below shows the outstanding amount of each facility, not including Treasury contributions that are invested in securities rather than loans to market participants.

Note on Treasury Contributions to Federal Reserve Programs

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.

In total, the Treasury has invested $114 billion in six facilities as of September 23, which is unchanged since the August report. Per the facility agreements, 85% of the equity contributions to the CCF, CPFF, MLF, MSF, and TALF 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, $14.9 billion for the MSF, and $8.5 billion for TALF.

At the congressional hearing, Treasury Secretary Steven Mnuchin and Jerome H. Powell, Chair of the Federal Reserve, reconfirmed their commitment to provide support to households and businesses. Meanwhile, Mnuchin noted there were limits to what could be done with the existing lending facilities and said that he would like to see legislation that would “reallocate that money to better use.”

Note on the Commercial Paper Funding Facility (CPFF) and Secondary Market Corporate Credit Facility (SMCCF)

On September 9, the Federal Reserve Bank of New York (NY Fed) announced the first wave of additional counterparties for CPFF and SMCCF. This follows the statement in July, which announced an initiative to expand the set of counterparties for CPFF, SMCCF, and the TALF.

According to the NY Fed’s press release, by widening the eligibility criteria for counterparties, it intends to further “its commitment to support diversity, inclusion, and opportunity as we increase these facilities’ operational capacity and reach.” On September 10, Daleep Singh, executive vice president of the NY Fed, emphasized the NY Fed’s effort in expanding the vendors and the counterparties for the lending facilities.

Note on Federal Reserve Swap Lines

Over the past month, central banks continued to reduce their use of the Fed’s USD swap lines. The reduction is partially due to the expiration of 84-day swaps entered during the early weeks of the crisis. Auctions for these swaps were conducted weekly. As these contracts are reaching maturity, the total outstanding amount declined. As of September 23, the total amount still outstanding is $31 billion. Compared to the peak on May 27, this is a 93% drop, reflecting the low demand of the swap lines these days.

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The following figures show the usage of Fed programs during the COVID-19 crisis. They also show data for similar programs during the Global Financial Crisis of 2007-09 (GFC), where applicable. The new graphs also indicate how soon each program was launched relative to the start date of recessions (February 1, 2020, for COVID, and December 1, 2007 for GFC). The actual take-up of these facilities has been relatively low compared to the take-up of similar facilities during the GFC.

For a more detailed comparison of Fed programs during the GFC and the COVID-19, see our Key Program Summaries.

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.

SW

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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. The facility had $7,377 million in outstanding loans on September 23. It is similar to the Asset-Backed Commercial Paper Liquidity Money Market Mutual Fund Liquidity Facility (AMLF) that the Fed launched during the GFC. The AMLF funded the purchase of ABCP from MMFs. In comparison, the MMLF is authorized to purchase a broader range of collateral.     

MMLF

Discount Window

The DW is a standing facility that allows the Fed to provide collateralized loans to depository institutions. It had $3,359 million in outstanding loans on September 23.                   

DW

Primary Dealer Credit Facility

The PDCF allows the Fed to extend collateralized loans to primary dealers. The facility was established under section 13(3). The facility had $233 million in outstanding loans on September 23.     

PDCF

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). The facility had $67.1 billion in outstanding loans on September 23.     

ppplf

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. The facility had $30 million in outstanding loans on September 23.     

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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. The SMCCF had $12.9 billion in outstanding loans on September 23.  The PMCCF has not extended any loans to date.

ccf

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. The facility had $1,651 million in outstanding loans on September 23.   

mlf

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. The Treasury has made an equity investment of $37.5 billion in MSF LLC. The facility had $1,837 million in outstanding loans on September 23.     

msf

Term Asset-Backed Securities Loan Facility

The TALF is established under section 13(3) to provide liquidity guaranteed by asset-backed 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 (TALF II LLC). The Treasury has made an equity investment of $10 billion in TALF II LLC. The facility had $2,896 million in outstanding loans on September 23.   

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Summary Table from our Key Program Summaries

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