Yale School of Management

Program on Financial Stability

Improving our understanding and management of systemic risk.

Use of Federal Reserve Programs - 12/02/2020

December 8, 2020
: By Junko Oguri and Steven Kelly

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 $87.1 billion. The use of swaps is now at 2% of the peak amount while a few central banks have slightly increased their use in the past few weeks.  

As of December 2, the Fed’s liquidity programs had $87.1 billion in outstanding loans. The total outstanding has fallen from $94.7 billion in October, 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 Treasury securities rather than loans to market participants. 

Note on the counterparties of the Commercial Paper Funding Facility (CPFF), Secondary Market Corporate Credit Facility (SMCCF), Term Asset-Backed Securities Loan Facility (TALF), and the agency commercial mortgage-backed securities purchases

On November 6 and 20, the Federal Reserve Bank of New York (NY Fed) announced additional counterparties for the CPFF, SMCCF, TALF, and the agency commercial mortgage-backed securities (agency CMBS) purchases. This follows the statement in July, which announced an initiative to expand the set of counterparties for these programs. The NY Fed explained that the newly added firms represent a diverse range of market participants, including Minority-, Women-, and Veteran-owned Business Enterprises (MWVBEs). The following dealers and sellers will be eligible in addition to those already announced on October 19 and 23.

The additional commercial paper dealer for the CPFF announced on November 6 is:

  • BNY Mellon Capital Markets, LLC

The additional eligible sellers for the SMCCF announced on November 6 are:

  • CastleOak Securities, L.P.
  • Great Pacific Securities
  • SMBC Nikko Securities America, Inc.
  • U.S. Bancorp Investments, Inc.

The additional agency CMBS approved counterparties announced on November 20 are:

  • Brean Capital LLC
  • PNC Capital Markets LLC

The additional agent for TALF announced on November 20 is:

  • Loop Capital Markets LLC

Note on Treasury Contributions to Federal Reserve Programs

On April 9, the Treasury announced that it intended to use funds available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to purchase equity in special purpose vehicles established under Fed lending programs. 

In total, the Treasury has invested $114 billion—including CARES and non-CARES funds—in six facilities, as of December 2. 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, $31.9 billion for the MSF, and $8.5 billion for TALF.

On November 19, the Treasury published a letter from Secretary Steven T. Mnuchin to Jerome Powell, Chairman of the Federal Reserve Board of Governors. The letter indicated the Treasury would not extend the programs established under the CARES Act after December 31. 

The Fed’s lending facilities established under Section 13(3) can be categorized into three buckets: the PDCF and PPPLF do not have Treasury capitalization; second, the CPFF and MMLF have equity protection from the Treasury’s pre-existing ESF funds; and, third, the facilities for corporate bonds and loans, municipal bonds, and asset-backed securities (the SMCCF, PMCCF, MSLP, MLF, and TALF) have equity funding that the Treasury provided under the CARES Act. The letter’s request applies to the latter bucket.

The Fed responded on November 19 with a statement that, “the Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.” On November 20, Chair Powell confirmed the Fed would arrange to return the unused portions of the funds allocated to the CARES Act facilities with a December 31 termination.  

For a discussion of these developments and the future of the Fed emergency lending facilities supported by CARES Act funds, see this YPFS blog post. 

Note on the extension of  Commercial Paper Funding Facility (CPFF), the Money Market Mutual Fund Liquidity Facility (MMLF), the Primary Dealer Credit Facility (PDCF), and the Paycheck Protection Program Liquidity Facility (PPPLF)

On November 30, the Fed announced that it would extend the following facilities originally scheduled to expire on (or around) December 31 this year, through March 31, 2021: the CPFF, MMLF, PDCF, and PPPLF. These four facilities do not have equity funding that the Treasury provided under the CARES Act. 

Note on Federal Reserve Swap Lines

Over the past month, central banks reduced their use of the Fed’s U.S. dollar swap lines. As of December 3, the total amount outstanding is $9,128 million. Compared to the peak on May 27, this is a 98% drop, reflecting the low demand of the swap lines in the current environment. 

While the overall demand has been low, a few central banks have resumed the use of the swap line over the past weeks. For instance, on November 19, the Bank of England (BOE) reported the use of $115 million. This was the first time since July 22 that the BOE reported use larger than $100 million. The Swiss National Bank has been increasing its use of the swap line. As of December 3, the Swiss National Bank reported $5,866 million outstanding, now representing 64 percent of the total outstanding amount (Figure 2).   

 For further details on the use of Federal Reserve Programs, please refer to the Fed’s monthly report to Congress.

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 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.

Money Market Mutual Fund Liquidity Facility

The MMLF allows the Fed to fund the purchase of money market mutual fund (MMF) 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 an equity cushion of $1.5 billion to the Money Market Mutual Fund Liquidity Facility—as part of $10 billion total in credit protection. The facility had $4,915 million in outstanding loans on December 2. 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 lend against a broader range of collateral.     

Discount Window

The DW is a standing facility that allows the Fed to provide collateralized loans to depository institutions. It had $1,992 million in outstanding loans on December 2.     

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 $250 million in outstanding loans on December 2.     

Paycheck Protection Program Liquidity Facility

The PPPLF allows the Fed to provide financial institutions with liquidity backed by loans to small businesses extended under the federal government’s Paycheck Protection Program and guaranteed by the Small Business Administration. The PPPLF was established under Section 13(3). The facility had $55 billion in outstanding loans on December 2.     

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 NY Fed through a special purpose vehicle, the Commercial Paper Funding Facility II LLC (CPFF II LLC). The Treasury has made an equity investment of $10 billion in CPFF II LLC. The facility had no outstanding loans on December 2.     

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 $13.9 billion in outstanding assets on December 2.  The PMCCF has not extended any credit to date.

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 $1,454 million in outstanding loans on December 2.     

Main Street Lending Programs

The MSF is established under Section 13(3) to provide loans to small and medium-sized businesses. The program operates through five facilities: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), the Main Street Expanded Loan Facility (MSELF), the Nonprofit Organization New Loan Facility (NONLF), and the Nonprofit Organization Expanded Loan Facility (NOELF).). The loans for all five facilities 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 $6,212 million in outstanding loans on December 2.     

Term Asset-Backed Securities Loan Facility

The TALF is established under Section 13(3) to provide liquidity collateralized 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 $3,548 million in outstanding loans on December 2.    

  

 Summary Table from our Key Program Summaries