The Federal Reserve announced Tuesday that it's taking steps to help companies secure the short-term funding they need to operate amid growing economic damage from the coronavirus pandemic.
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The U.S. central bank created a special credit facility -- a version of the one deployed during the 2008 financial crisis -- to purchase commercial paper from issuers that have been having a difficult time finding buyers on the open market after securing permission from the Treasury Department.
“The commercial-paper market has been under considerable strain in recent days as businesses and households face greater uncertainty in light of the coronavirus outbreak,” the Fed’s board of governors said in a statement. “By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial-paper obligations, this facility should encourage investors to once again engage in term lending in the commercial-paper market.”
The move will essentially allow the Fed to get liquidity straight to struggling businesses by letting them circumvent the bank.
The Treasury will provide $10 billion from a pool of money it retains called the Exchange Stabilization Fund to the Fed to protect it from taking credit losses on such loans.
Policymakers at the Fed have taken a number of aggressive steps this week to insulate the economy, most notably slashing the benchmark federal funds rate by 100-basis points and sending them to near zero. The bank also announced that it will purchase $700 billion in Treasury securities.