Yale School of Management

Program on Financial Stability

Improving our understanding and management of systemic risk.

YPFS COVID-19 Intervention Handbook

Beginning in March 2020, the New Bagehot project shifted its focus to real-time analysis of financial policies created in response to the ongoing COVID-19 pandemic and its economic consequences. Posts are regularly published on YPFS’ Systemic Risk Blog, where individuals can follow to read examinations of policies around the world—including lessons learned as programs develop and are utilized. Additionally, YPFS keeps a collection of all blog posts related to the COVID-19 crisis in a single PDF document, available here.

Below  the are posts from our Systemic Risk Blog organized by subject area. Some subject areas also include Resource Guides that  gather and synthesize materials on crisis response within that area of interest. New blog posts and resource guides will be added as they become available.

CRITICAL INDUSTRIES

Critical industries play key roles in supply chains and transportation and are often vital to keep the economy running smoothly. However, due to high fixed costs, these industries are also highly vulnerable to targeted economic shocks. Policies targeted to aid these critical industries must take account of the tools available, as well as obligations to protect taxpayers by attempting to guarantee recuperation of funding.

ANALYSIS    

CASE STUDIES AND POLICY CHANGES   

rESOURCE GUIDES    

LIQUIDITY AND MARKET LIQUIDITY

Central banks support will normally provide large amounts of liquidity to encourage credit markets to operate in times where they tend to slow or completely freeze. Market and emergency liquidity relief comes in various forms, such as increased central bank repurchase agreement activity, large-scale direct purchases of obligations like government debt, corporate bonds, or commercial paper on primary and secondary markets, and expanding the scope of existing facilities and operations by increasing tenor and widening eligibility, to name a few.

ANALYSIS    

Federal Reserve Program Usage

CASE STUDIES AND POLICY CHANGES   

rESOURCE GUIDES    

MACROPRUDENTIAL POLICY

Central banks do not just support the economy using their ability to set interest rates and provide lender-of-last-resort financing. They, and their financial supervisory colleagues, also have a set of tools to keep financial markets and institutions from running too hot or too cold. These are known as macroprudential policies. With these policies, governments might allow financial institutions to do things like use their capital buffers, allow payment standstills on loans, or use their liquidity buffers. Authorities typically use macroprudential policies to complement fiscal policy and monetary policy.

ANALYSIS    

CASE STUDIES AND POLICY CHANGES   

RESOURCE GUIDES    

MORTGAGE RELIEF

Mortgage and rent costs constitute a major component of many individuals’ cashflows. As fixed cost commitments, measures taken to alleviate the payment burden can greatly improve the likelihood of homeowners’ staying in homes. Policies targeted to aid these individuals must take account of the duration of financial struggle, underlying financial circumstances of borrowers and renters, and the impacts such policies can have on lenders.

ANALYSIS    

CASE STUDIES AND POLICY CHANGES   

rESOURCE GUIDES    

MULTINATIONAL ORGANIZATIONS

Multinational organizations comprise the IMF, the World Bank, the European Union, the G-20, and other various regional multilateral development banks. These organizations provide programs and financing facilities to assist governments and the private sector in responding to the COVID-19 crisis. Actions of multinational organizations include loans, grants, guarantees, forbearance, and technical assistance. Many of these actions tend to target vulnerable countries and populations around the world.

aNALYSIS    

CASE STUDIES AND POLICY CHANGES   

rESOURCE GUIDES    

SMALL AND MEDIUM ENTERPRISES

The majority of workers in many economies are employed by SMEs, and these firms account for more than 90% of total businesses worldwide. Due to the COVID-19 pandemic, many SMEs were forced to shut-down. Government programs in response to the COVID-19 pandemic vary with some focused on providing access to finance, supporting employee wages, providing grants to cover various expenses, among others. In many cases, especially in emerging markets, governments are also providing support to informal economy workers and firms. 

ANALYSIS    

CASE STUDIES AND POLICY CHANGES   

rESOURCE GUIDES    

SUPPORT FOR INDIVIDUALS 

Support for individuals includes all policies implemented to reduce the economic impact of a downturn on households. These measures support households by offsetting the decline in disposable income they face as a result of adverse economic conditions. Policies implemented to achieve this include direct payments, expanded unemployment benefits, or income tax cuts.

ANALYSIS    

CASE STUDIES AND POLICY CHANGES   

rESOURCE GUIDES    

SWAPS    

To ensure that international trade continues during periods of financial stress, central banks establish short-term liquidity swap lines. While many states participate in swap lines, the prominence of the US dollar in global markets makes Federal Reserve swaps particularly useful. These work the same as any swap line: a foreign central bank uses their currency to purchase dollars at the market exchange rate, and agrees to use dollars to purchase back their currency at the original exchange rate, plus interest. The foreign central bank may then freely lend dollars to its domestic institutions. Because the exchange rate does not change, swaps are riskless transactions that effectively support foreign exchange liquidity.

ANALYSIS  

CASE STUDIES AND POLICY CHANGES   

rESOURCE GUIDES    

OVERSIGHT & COMMUNICATION

Sweeping relief programs, if unchecked, can consume scarce funds and overrun their legal authorities. In many cases, the full account of a government’s actions will not be known for years. Oversight and official communication address this problem by bolstering transparency and communication while allowing policy administrators to focus on the work at hand.

ANALYSIS  

CASE STUDIES AND POLICY CHANGES   

POLICY PROPOSAL & MARKET COMMENTARY

Rather than describe the administration of crisis-fighting programs, these articles analyze the design of policies and comment on economic trends that are not easily contained in a single policy arena. They are largely prospective in nature, though some articles reflect on novel aspects of the coronavirus recovery without limiting their scope to a single policy area.

ANALYSIS  

CASE STUDIES AND POLICY CHANGES   

GUEST ARTICLES

These have either been written by YPFS authors and published elsewhere, or written by authors external to YPFS and published on the Systemic Risk Blog.

Additional rESOURCE GUIDES   

APPENDIX