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News in Systemic Risk: Monday, March 23, 2020 (10 a.m. ET)

March 23, 2020

The Fed should clarify how banks can deploy capital and liquidity (Nellie Liang; Brookings Institution)

‘Stress tests’ for banks as liquidity insurers in a time of COVID (Viral Acharya, Sascha Steffen; VoxEU)

 Complexity in Large U.S. Banks (Linda S. Goldberg, April Meehl; Federal Reserve Bank of New York)

 Liquidity Management of Heterogeneous Banks during the Great Recession (Toshiaki Ogawa; Bank of Japan)

 A proposal for a Covid Credit Line (Agnès Bénassy-Quéré, Arnoud Boot, Antonio Fatás, Marcel Fratzscher, Clemens Fuest, Francesco Giavazzi, Ramon Marimon, Philippe Martin, Jean Pisani-Ferry, Lucrezia Reichlin, Dirk Schoenmaker, Pedro Teles, Beatrice Weder di Mauro; VoxEU)

 Senate Fails to Advance Coronavirus Rescue Package for Second Day (Siobhan Hughes, Andrew Duehren; Wall Street Journal)

 Fed Unveils Major Expansion of Market Intervention (Nick Timiraos; Wall Street Journal)

The dawn of a safer and sounder European banking sector (Andreas Dombret; Centralbanking)

Continue reading “News in Systemic Risk: Monday, March 23, 2020 (10 a.m. ET)”

Central Banks Launch Funding for Lending Programs

March 23, 2020

As societies implement social distancing in response to the COVID-19 pandemic, millions of small businesses are experiencing catastrophic revenue declines and temporary closure. Governments across the world are responding with a range of programs to prevent systemwide bankruptcies. 

Central banks have adapted their traditional lender-of-last-resort function, the discount window, to encourage banks to lend to small businesses. In this post, we compare four such “funding for lending” programs that we have identified in the current coronavirus crisis: Australia, the United Kingdom, Saudi Arabia, and Taiwan. We also discuss two earlier, similar programs: the Bank of England’s Funding for Lending Scheme in 2012 and Hungary’s Funding for Growth Scheme in 2013. 

Continue reading “Central Banks Launch Funding for Lending Programs”

Denmark Plans to Pay Fixed Costs for SMEs Hit by Coronavirus Lockdown

March 21, 2020

On March 18, the Danish Minister of Finance introduced a plan to pay a significant portion of the cost of small and medium businesses whose revenues fall by more than 25% during the coronavirus pandemic. The plan, which the Parliament passed on March 19, would cost the government roughly 40 billion Danish crowns ($5.8 billion or about 1.6% of GDP) for the first three months (see details here in Danish).

Continue reading “Denmark Plans to Pay Fixed Costs for SMEs Hit by Coronavirus Lockdown”

UK, EU Move to Ease Impact of Accounting Rules for Borrowers Affected by COVID-19

March 21, 2020

On March 20, the Bank of England and European Central Bank (ECB) provided guidance to banks on how to follow accounting rules in evaluating loans to borrowers affected by the COVID-19 crisis.

 The new IFRS 9 accounting standard, implemented in most of the world outside the U.S., requires banks to set aside loan loss allowances against all future expected losses for loans to borrowers who are categorized in high-risk groups. For borrowers in the low-risk group, the standard only requires banks to set aside allowances for 12 months of expected losses.

Continue reading “UK, EU Move to Ease Impact of Accounting Rules for Borrowers Affected by COVID-19”

Japan Introduces Measures to Facilitate Corporate Financing

March 21, 2020

On March 16, the Bank of Japan (BoJ) introduced a package of emergency measures to facilitate corporate financing.

Through the new Special Funds-Supplying Operations, the BoJ will lend up to 8 trillion yen ($72 billion) against corporate debt at a 0% interest rate, with maturities up to one year. The terms and conditions can be found here.

Continue reading “Japan Introduces Measures to Facilitate Corporate Financing”

UK Introduces Covid Corporate Financing Facility

March 20, 2020

On March 17, the UK government announced the creation of the Covid Corporate Financing Facility (CCFF) to purchase commercial paper from issuers that “make a material contribution to the UK economy.” Eligible issuers will broadly include all UK-incorporated companies, including those with foreign parents. The program will not purchase commercial paper issued by banks or their affiliates, or by leveraged investment vehicles.

Continue reading “UK Introduces Covid Corporate Financing Facility”

Loan Guarantee Programs May Include Nonbanks

March 20, 2020

Loan guarantee programs that involve nonbank lenders may be more effective than bank-only programs at getting credit quickly to small businesses that need it during the coronavirus crisis.

Small and medium-sized enterprises (SMEs) play a major role in the world economy, representing roughly 90% of businesses and 50% of employment worldwide. Many countries operate credit guarantee programs to encourage lending to SMEs. These programs are typically limited to bank loans. For example, the UK launched a Coronavirus Business Interruption Loan Scheme this week, taking advantage of existing programs, but the program is limited to forty previously accredited bank lenders. 

Continue reading “Loan Guarantee Programs May Include Nonbanks”

SRC Statement on Financial System Actions for Covid-19

March 20, 2020

The Systemic Risk Council (SRC) sets forth a statement addressing G20 finance ministers and governors on measures to contain economic and financial crisis from the current coronavirus pandemic.  The SRC is a private sector, non-partisan body of former government officials and financial and legal experts committed to addressing regulatory and structural issues relating to global systemic risk, with a particular focus on the U.S. and Europe. Sir Paul Tucker, a former Deputy Governor at the Bank of England, is the chair of the SRC and a member of the advisory board for Yale Program on Financial Staibility

Continue reading “SRC Statement on Financial System Actions for Covid-19”

Fed introduces Money Market Mutual Fund Liquidity Facility

March 20, 2020

Money market mutual funds (“money funds”) are common investments for families, businesses, pension funds, municipalities and others.  On March 18th, the Federal Reserve announced that it would implement a Money Market Mutual Fund Liquidity Facility (MMLF) to enable money funds to meet redemption requests and support the overall flow of credit to businesses and households. Money funds are significant investors in commercial paper, which many businesses rely on as a source of funding.

Continue reading “Fed introduces Money Market Mutual Fund Liquidity Facility”

News in Systemic Risk: Monday, March 23, 2020 (10 a.m. ET)

March 23, 2020

The Fed should clarify how banks can deploy capital and liquidity (Nellie Liang; Brookings Institution)

‘Stress tests’ for banks as liquidity insurers in a time of COVID (Viral Acharya, Sascha Steffen; VoxEU)

 Complexity in Large U.S. Banks (Linda S. Goldberg, April Meehl; Federal Reserve Bank of New York)

 Liquidity Management of Heterogeneous Banks during the Great Recession (Toshiaki Ogawa; Bank of Japan)

 A proposal for a Covid Credit Line (Agnès Bénassy-Quéré, Arnoud Boot, Antonio Fatás, Marcel Fratzscher, Clemens Fuest, Francesco Giavazzi, Ramon Marimon, Philippe Martin, Jean Pisani-Ferry, Lucrezia Reichlin, Dirk Schoenmaker, Pedro Teles, Beatrice Weder di Mauro; VoxEU)

 Senate Fails to Advance Coronavirus Rescue Package for Second Day (Siobhan Hughes, Andrew Duehren; Wall Street Journal)

 Fed Unveils Major Expansion of Market Intervention (Nick Timiraos; Wall Street Journal)

The dawn of a safer and sounder European banking sector (Andreas Dombret; Centralbanking)

Continue reading “News in Systemic Risk: Monday, March 23, 2020 (10 a.m. ET)”

Central Banks Launch Funding for Lending Programs

March 23, 2020

As societies implement social distancing in response to the COVID-19 pandemic, millions of small businesses are experiencing catastrophic revenue declines and temporary closure. Governments across the world are responding with a range of programs to prevent systemwide bankruptcies. 

Central banks have adapted their traditional lender-of-last-resort function, the discount window, to encourage banks to lend to small businesses. In this post, we compare four such “funding for lending” programs that we have identified in the current coronavirus crisis: Australia, the United Kingdom, Saudi Arabia, and Taiwan. We also discuss two earlier, similar programs: the Bank of England’s Funding for Lending Scheme in 2012 and Hungary’s Funding for Growth Scheme in 2013. 

Continue reading “Central Banks Launch Funding for Lending Programs”

Denmark Plans to Pay Fixed Costs for SMEs Hit by Coronavirus Lockdown

March 21, 2020

On March 18, the Danish Minister of Finance introduced a plan to pay a significant portion of the cost of small and medium businesses whose revenues fall by more than 25% during the coronavirus pandemic. The plan, which the Parliament passed on March 19, would cost the government roughly 40 billion Danish crowns ($5.8 billion or about 1.6% of GDP) for the first three months (see details here in Danish).

Continue reading “Denmark Plans to Pay Fixed Costs for SMEs Hit by Coronavirus Lockdown”

UK, EU Move to Ease Impact of Accounting Rules for Borrowers Affected by COVID-19

March 21, 2020

On March 20, the Bank of England and European Central Bank (ECB) provided guidance to banks on how to follow accounting rules in evaluating loans to borrowers affected by the COVID-19 crisis.

 The new IFRS 9 accounting standard, implemented in most of the world outside the U.S., requires banks to set aside loan loss allowances against all future expected losses for loans to borrowers who are categorized in high-risk groups. For borrowers in the low-risk group, the standard only requires banks to set aside allowances for 12 months of expected losses.

Continue reading “UK, EU Move to Ease Impact of Accounting Rules for Borrowers Affected by COVID-19”

Japan Introduces Measures to Facilitate Corporate Financing

March 21, 2020

On March 16, the Bank of Japan (BoJ) introduced a package of emergency measures to facilitate corporate financing.

Through the new Special Funds-Supplying Operations, the BoJ will lend up to 8 trillion yen ($72 billion) against corporate debt at a 0% interest rate, with maturities up to one year. The terms and conditions can be found here.

Continue reading “Japan Introduces Measures to Facilitate Corporate Financing”

UK Introduces Covid Corporate Financing Facility

March 20, 2020

On March 17, the UK government announced the creation of the Covid Corporate Financing Facility (CCFF) to purchase commercial paper from issuers that “make a material contribution to the UK economy.” Eligible issuers will broadly include all UK-incorporated companies, including those with foreign parents. The program will not purchase commercial paper issued by banks or their affiliates, or by leveraged investment vehicles.

Continue reading “UK Introduces Covid Corporate Financing Facility”

Loan Guarantee Programs May Include Nonbanks

March 20, 2020

Loan guarantee programs that involve nonbank lenders may be more effective than bank-only programs at getting credit quickly to small businesses that need it during the coronavirus crisis.

Small and medium-sized enterprises (SMEs) play a major role in the world economy, representing roughly 90% of businesses and 50% of employment worldwide. Many countries operate credit guarantee programs to encourage lending to SMEs. These programs are typically limited to bank loans. For example, the UK launched a Coronavirus Business Interruption Loan Scheme this week, taking advantage of existing programs, but the program is limited to forty previously accredited bank lenders. 

Continue reading “Loan Guarantee Programs May Include Nonbanks”

SRC Statement on Financial System Actions for Covid-19

March 20, 2020

The Systemic Risk Council (SRC) sets forth a statement addressing G20 finance ministers and governors on measures to contain economic and financial crisis from the current coronavirus pandemic.  The SRC is a private sector, non-partisan body of former government officials and financial and legal experts committed to addressing regulatory and structural issues relating to global systemic risk, with a particular focus on the U.S. and Europe. Sir Paul Tucker, a former Deputy Governor at the Bank of England, is the chair of the SRC and a member of the advisory board for Yale Program on Financial Staibility

Continue reading “SRC Statement on Financial System Actions for Covid-19”

Fed introduces Money Market Mutual Fund Liquidity Facility

March 20, 2020

Money market mutual funds (“money funds”) are common investments for families, businesses, pension funds, municipalities and others.  On March 18th, the Federal Reserve announced that it would implement a Money Market Mutual Fund Liquidity Facility (MMLF) to enable money funds to meet redemption requests and support the overall flow of credit to businesses and households. Money funds are significant investors in commercial paper, which many businesses rely on as a source of funding.

Continue reading “Fed introduces Money Market Mutual Fund Liquidity Facility”