Federal Reserve Launches 3rd Emergency Lending Program

The Federal Reserve announced it would create an emergency lending facility to help mitigate the viral outbreak’s impact on the market. The Fed said that it would lend money in the form of short-term IOUs, known as commercial paper, to banks to buy financial assets from mutual funds.

The Federal Reserve has a duty to aim for full employment and stable prices in the nation’s monetary policy by manipulating liquidity and credit conditions in the economy. The Fed supervises and controls the health and soundness of the national banking and monetary system.

Its function is also to maintain the financial system’s stability and to contain the systemic risk in financial markets. It also provides the U.S. Government, U.S. financing institutions, and official international institutions with some financial services. It plays a significant part in the operation and control of national payment systems.

During this time of struggle, the Federal Reserve is committed to using its full range of resources to help families, businesses, and the U.S. economy in general. The pandemic of coronavirus in the United States and around the world creates tremendous difficulties.

Although there is still a lot of confusion, our economy is obviously going through severe disturbances. In the public and private sectors, concerted measures must be made to limit the loss of jobs and to facilitate a rapid recovery.

emergency lending
Image source: wikipedia.org

Conclusion

The Federal Reserve will likely continue to introduce new measures in an effort to stabilize the economy as the true impact of the coronavirus has yet to reach its peak in the United States. This is coupled with a wide variety of special federal programs that are aimed at helping America financially during this time.

The Emergency Lending Program

This is the Fed’s most recent attempt to smooth the functioning of financial markets as creditors, banks, and businesses scramble to hoard cash with their stock markets plunging and their economies slowing sharply.

The Fed reactivated its third financial crisis lending facility to provide banks more cash in the form of short-term loans. Thursday’s foreign currency swaps are limited to six central banks in Australia, Brazil, Singapore, Korea, and Sweden by $60 billion. Central banks in Denmark, Norway, and New Zealand have limited the exchange rates to $30 billion.

The Fed hopes to encourage further lending to companies looking to collect cash as their profits fall during the spread of coronavirus by encouraging buying of trade papers from major companies and banks.

The initiative is the third system that the Fed has resurrected following the 2008 financial crisis when the central bank set up a myriad of financial markets services.

The Mutual Fund Liquidity Facility, known as the Money Market Fund, seeks to help capital markets discharge collateral such as commercial paper as well as treasury securities and mortgage-bonds backed by the Fannie Mae and Freddie Mac mortgage giants.

Money Market Mutual Funds are owned by private investment account investors, as well as institutional and corporate investors. Over the last two weeks, many of the funds have tried to sell assets to raise cash because many investors are selling their shares. With cash demand rising as stocks fall and the economy slows. However, the funds have been struggling to find buyers.

During this time of struggle, the Federal Reserve is committed to using its full range of resources to help families, businesses, and the U.S. economy in general. The pandemic of coronavirus in the United States and around the world creates tremendous difficulties.

Although there is still a lot of confusion, our economy is obviously going through severe disturbances. In the public and private sectors, concerted measures must be made to limit the loss of jobs and to facilitate a rapid recovery.

emergency lending
Image source: wikipedia.org

Conclusion

The Federal Reserve will likely continue to introduce new measures in an effort to stabilize the economy as the true impact of the coronavirus has yet to reach its peak in the United States. This is coupled with a wide variety of special federal programs that are aimed at helping America financially during this time.