Tag Archives: Federal Reserve

Federal Reserve announces post-stress test capital ratios for large banks

By Pete Schroeder

WASHINGTON (Reuters) – The U.S. Federal Reserve announced on Monday how much each large bank that underwent its 2020 stress tests will have to hold in additional capital.

The results mark the first time the Fed has given out custom capital requirements for each bank under its new “stress capital buffer,” and takes effect on Oct. 1. Goldman Sachs and Morgan Stanley were ordered to hold the most capital of the 34 firms tested, with ratios of 13.7% and 13.4% respectively.

The custom capital requirements follow stress test results released in June, which found that banks would weather heavy capital losses should the economic fallout from the coronavirus pandemic drag on or worsen. The Fed ordered banks to cap dividend payments and bar share repurchases until at least the fourth quarter to ensure they have sufficient cushions.

The new capital ratio combines the minimum capital requirements of 4.5% and the new “stress capital buffer,” which is determined by how each bank fared under a hypothetical severe economic downturn. That buffer is at least 2.5%, but was highest for Deutsche Bank’s U.S. operations at 7.8%.

The nation’s largest banks also face an additional capital surcharge for their predominant role in the financial system, ranging from 1% to 3.5% for JP Morgan Chase, the nation’s biggest bank.

The Fed also announced that it had reaffirmed the stress test results for five banks that requested reconsideration: BMO Financial Corp., Capital One Financial Corp, Citizens Financial Group Inc, Goldman Sachs and Regions Financial Corp. The Fed said the additional review found its stress test models worked as intended and there were no errors.

(Reporting by Pete Schroeder; Editing by Chizu Nomiyama and Jonathan Oatis)

Trump signs coronavirus relief orders after talks with Congress break down

By Jeff Mason

BEDMINSTER, N.J. (Reuters) – President Donald Trump signed executive orders on Saturday partly restoring enhanced unemployment payments to the tens of millions of Americans who lost jobs in the coronavirus pandemic, as the United States marked a grim milestone of 5 million cases.

Negotiations broke down this week between the White House and top Democrats in Congress over how best to help Americans cope with the heavy human and economic toll of the crisis, which has killed more than 160,000 people across the country.

Trump said the orders would provide an extra $400 per week in unemployment payments, less than the $600 per week passed earlier in the crisis. Some of the measures were likely to face legal challenges, as the U.S. Constitution gives Congress authority over federal spending.

“This is the money they need, this is the money they want, this gives them an incentive to go back to work,” the Republican president said of the lower payments. He said 25% of it would be paid by states, whose budgets have been hard hit by the crisis.

Republicans have argued that higher payments were a disincentive for unemployed Americans to try to return to work, though economists, including Federal Reserve officials, disputed that assertion.

Trump’s move to take relief measures out of the hands of Congress drew immediate criticism from some Democrats.

“Donald Trump is trying to distract from his failure to extend the $600 federal boost for 30 million unemployed workers by issuing illegal executive orders,” said Senator Ron Wyden, the top Democrat on the Senate Finance Committee. “This scheme is a classic Donald Trump con: playacting at leadership while robbing people of the support they desperately need.”

The Democratic-majority House of Representatives passed a coronavirus support package in May which the Republican-led Senate ignored.

Democratic presidential candidate Joe Biden called the orders a “series of half-baked measures” and accused Trump of putting Social Security “at grave risk” by delaying the collection of payroll taxes that pay for the program.

Trump also said he was suspending collection of payroll taxes, which pay for Social Security and other federal programs, an idea that he has repeatedly raised but has been rejected by both parties in Congress. He said the suspension would apply to people making less than $100,000 per year.

His orders would also stop evictions from rental housing that has federal financial backing and extend zero percent interest on federally financed student loans.

Trump initially played down the disease’s threat and has drawn criticism for inconsistent messages on public health steps such as social distancing and masks.

He spoke to reporters on Saturday at his New Jersey golf club, in a room that featured a crowd of cheering supporters.

FAR APART

Nearly two weeks of talks between White House officials and congressional Democrats ended on Friday with the two sides still about $2 trillion apart.

House Speaker Nancy Pelosi had pushed to extend the enhanced unemployment payments, which expired at the end of July, at the previous rate of $600 as well as to provide more financial support for city and state governments battered by the crisis.

Pelosi and Senate Minority Leader Chuck Schumer on Friday offered to reduce the $3.4 trillion coronavirus aid package that the House passed in May by nearly a third if Republicans would agree to more than double their $1 trillion counteroffer.

White House negotiators Treasury Secretary Steven Mnuchin and Chief of Staff Mark Meadows rejected the offer.

The $1 trillion package that Senate Majority Leader Mitch McConnell unveiled late last month ran into immediate opposition from his own party, with as many as 20 of the Senate’s 53 Republicans expected to oppose it.

Trump did not rule out a return to negotiations with Congress.

“I’m not saying they’re not going to come back and negotiate,” he said on Saturday. “Hopefully, we can do something with them at a later date.”

Democrats have already warned that such executive orders are legally dubious and would likely be challenged in court, but a court fight could take months.

Trump has managed to sidestep Congress on spending before, declaring a national emergency on the U.S.-Mexico border to shift billions of dollars from the defense budget to pay for a wall he promised during his 2016 election campaign.

Congress passed legislation to stop him, but there were too few votes in the Republican-controlled Senate to override his veto – a scenario that would likely play out again with less than 90 days to go before the Nov. 3 presidential election.

(Reporting by Jeff Mason, additional reporting by Raphael Satter, Brad Brooks, and Rich McKay; Writing by Scott Malone; Editing by Diane Craft, Daniel Wallis, Jonathan Oatis and Sonya Hepinstall)

What you need to know about the coronavirus right now 5-19-20

(Reuters) – Here’s what you need to know about the coronavirus right now:

On the economy, “medical metrics” rule for now

U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell will testify on Tuesday before the Senate Banking Committee and face questions about their plans keep the world’s largest economy afloat and missteps in rolling out some $3 trillion in aid so far.

Two months into the pandemic, many analysts have concluded that U.S. policy has at best fought back worst-case outcomes on both the health and economic front.

Powell has said he sees the likely need for up to six more months of government financial help for firms and families. With regular data on the economy at best volatile and at worst outdated when it comes out, he said “medical metrics” were the most important signs to watch right now.

The presidential pill

Donald Trump surprised many on Monday by revealing that he is taking hydroxychloroquine as a preventative medicine against the coronavirus – despite warnings about the malaria drug.

“I’ve been taking it for the last week and a half. A pill every day,” he told reporters. “All I can tell you is so far I seem to be OK.”

Weeks ago Trump had promoted the drug as a potential treatment based on a positive report about its use against the virus, but subsequent studies found it was not helpful. The Food and Drug Administration issued a warning about it.

Glimmer of hope

That overshadowed news that an experimental COVID-19 vaccine made by Moderna Inc produced protective antibodies in a small group of healthy volunteers, according to very early data released by the biotech company on Monday.

The vaccine has the green light to start the second stage of human testing. In this Phase II trial to test effectiveness and find the optimal dose, Moderna said it will drop plans to test a 250 mcg dose and test a 50 mcg dose instead.

Reducing the dose required to produce immunity could help spare the amount of vaccine required in each shot, meaning the company could produce more of the vaccine.

Eating with your mask on

Israeli inventors have developed a mask with a remote control mouth that lets diners eat without taking it off, which they say could make a visit to a restaurant less risky.

A squeeze of a lever opens a slot in the front of the mask so food can pass through.

The process could get messy with ice cream or sauces, but more solid morsels can be gobbled up a la Pac-Man in the arcade game.

(Compiled by Karishma Singh and Mark John; Editing by Giles Elgood)

Seven weeks into coronavirus lockdowns, Fed has a new, darker message

By Heather Timmons

(Reuters) – One Thursday morning seven weeks ago, Federal Reserve Chair Jerome Powell made a rare appearance on NBC’s “Today Show” to offer a reassuring message to Americans dealing with economic fallout from measures to contain the coronavirus outbreak.

There is “nothing fundamentally wrong with our economy,” Powell told viewers while pointing out the U.S. central bank’s outsized ability to take on lending risk and provide a financial “bridge” over the temporary economic weakness the country was experiencing.

Speaking after the Fed cut interest rates to near zero and rolled out a plan to backstop credit for small- and mid-sized companies, Powell emphasized the first order of business was to get the virus under control.

“The sooner we get through this period and get the virus under control, the sooner the recovery can come,” said Powell, echoing remarks made the day before by Anthony Fauci, a top U.S. health official helping to coordinate the federal government’s response to the coronavirus crisis.

At the time, Powell said he expected economic activity would resume in the second half of the year, and maybe even enjoy a “good rebound.”

But on Wednesday, he offered a much more sober outlook.

In an interview webcast by the Peterson Institute for International Economics, Powell warned  of an “extended period” of weak economic growth, tied to uncertainty about how well the virus could be controlled in the United States. “There is a sense, growing sense I think, that the recovery may come more slowly than we would like,” he said.

Fauci, the director of the National Institute of Allergy and Infectious Diseases, was similarly somber when he told lawmakers earlier this week that the country was by no means in “total control” of the outbreak.

“There is a real risk that you will trigger an outbreak that you may not be able to control and, in fact, paradoxically, will set you back, not only leading to some suffering and death that could be avoided, but could even set you back on the road to try to get economic recovery,” Fauci said.

The pandemic has killed more than 83,000 people in the United States so far , and many epidemiological models now point to a death toll that will surpass 100,000 in a matter of weeks.

Overall new cases of the virus continue to climb as well, as states end lockdowns and reopen local economies without the widespread, uniform testing and contact tracing policies that helped stamp out initial outbreaks in South Korea and Germany.

UNCERTAIN FUTURE

Powell’s remarks on Wednesday mirrored warnings this week from a clutch of regional Fed presidents who outlined the country’s uncertain future.

U.S. central bank officials, and especially the Fed chief, historically choose their words carefully, to avoid alarming or exciting investors or causing swings in financial markets, making their universally dour outlook more remarkable.

St. Louis Fed President James Bullard said the situation could lead to a new Great Depression, with millions of so-far temporary job losses becoming permanent, and businesses failing “on a grand scale.”

“We have to get better at this and get more risk-based with our health policy,” Bullard said.

The U.S. economy can return to growth in the second half of the year, Cleveland Fed President Loretta Mester said on Tuesday, with more testing and contact tracing. If that happens, she said, “as some of the stay-at-home restrictions are lifted, the economy will begin to grow again in the second half of this year and unemployment will begin to move down.”

However, a more pessimistic scenario, in which a surge in infections requires businesses to shut down again or the crisis leads to more bankruptcies or instability in the banking sector, is “almost as likely,” she said.

(Reporting by Howard Schneider, Ann Saphir, Jonnelle Marte, and Heather Timmons; Writing by Heather Timmons; Editing by Dan Burns and Paul Simao)

Fed says backstop for small business loans fully operational

WASHINGTON (Reuters) – The Federal Reserve’s program to back emergency government loans to small businesses is “fully operational,” the U.S. central bank said on Thursday, a boost to banks as they await a possible expansion to the total amount of funds they will be allowed to disburse to help companies through the coronavirus crisis.

The Fed’s program is designed to make it easier for banks to offer loans under the $350 billion Paycheck Protection Program run by the Small Business Administration (SBA) by extending credit to financial institutions that make them, using the loans as collateral.

There are no fees for using the facility but the Fed said it will charge banks a 0.35% interest rate.

“Supplying financial institutions with additional liquidity will help increase their capacity to make PPP loans,” the Fed said.

The SBA has already allocated more than 1.6 million loans, which have the potential to be forgiven, to small businesses in all 50 states. These account for more than $338 billion of the initial $350 billion, since the initial program passed by Congress was launched less than two weeks ago.

With funds set to be exhausted shortly, U.S. Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza on Wednesday urged Congress to approve an additional $250 billion in funds. Democrats have said they are in favor, but only if there are additional safeguards to ensure that credit is reaching businesses in underserved communities that don’t have strong pre-existing relationships with banks.

Data released on Tuesday showed that the construction, professional services and manufacturing sectors so far are among those topping the list of recipients, although the program has been hampered by slow disbursement of the actual funds and criticism that it shows preference to those who are existing business customers of participating lenders.

The Fed’s own program does not expand the amount available but it does allow banks to move loans off their balance sheets more quickly, freeing up capital to lend further if Congress adds more to the pot.

(Reporting by Lindsay Dunsmuir and Ann Saphir; Editing by Chizu Nomiyama, Jonathan Oatis and Bernadette Baum)

Small U.S. businesses were already struggling. Then coronavirus hit

By Jonnelle Marte

(Reuters) – Many small businesses were struggling with funding shortfalls and financial challenges even before the coronavirus pandemic hit, leaving them with little cash on hand to weather the slowdown caused by the virus, according to data released by the Federal Reserve on Tuesday.

Many small firms, particularly the smallest businesses and those owned by black and Hispanic entrepreneurs, also lack traditional banking relationships, which could make it more difficult for them to receive financial assistance during the crisis.

“Small businesses nationwide now face unprecedented challenges as the country grapples with the significant economic and social effects of the COVID-19 pandemic,” Claire Kramer Mills, assistant vice president at the New York Fed, said in a statement.

The majority of small employers reported growing revenue last year and more than a third even expanded their staffs, according to the 2019 survey report of more than 5,500 small firms issued by the 12 Federal Reserve Banks.

However, two-thirds of the businesses said they faced financial challenges last year, according to the report, which focused on businesses with fewer than 500 employees.

In a supplemental brief, researchers at the New York Federal Reserve assessed the ability for small businesses to cope with a substantial hit to revenue, categorizing firms according to their financial health – a metric based on their profitability, credit scores and earnings. Among the “healthy” firms, only about 20% had enough cash saved to continue operating as normal after losing two months’ worth of revenue.

Most small businesses surveyed by the Fed said they would have to shrink their staffs, delay payments or scale down operations after taking such a hit. Many firms would need to go into debt or turn to personal funds to close the gap.

That hypothetical scenario – two months without revenue – posed to businesses owners at the end of last year is now a reality for many firms, which closed down or substantially reduced their operations because of nationwide efforts to contain the spread of the coronavirus.

A new $349 billion small business bailout fund launched last week to shore up businesses with fewer than 500 employees got off to somewhat rocky roll out last week after some banks grappled with unclear rules and inconsistent government infrastructure. Some banks initially said they were prioritizing existing customers, putting some small business owners at a potential disadvantage for the first-come, first-served program.

Only 44% of small businesses had turned to a bank for a loan in the past five years and just 6% had turned to a credit union, according to the Fed survey. Businesses with more than $1 million in annual revenue and those with white owners were more likely to have used banks for funding, while smaller businesses and those with black or Hispanic owners were more likely to have used online lenders.

(Reporting by Jonnelle Marte; Editing by Chizu Nomiyama)

‘It’s okay to feel scared’: Coronavirus brings countries close to standstill

By Doina Chiacu and Guy Faulconbridge

NEW YORK/LONDON (Reuters) – Bars, restaurants, cinemas and schools were shutting down from New York and Los Angeles to Paris and Dubai in a worldwide effort to combat the coronavirus pandemic, as financial markets tumbled despite emergency action by global central banks.

The U.S. Federal Reserve cut interest rates for the second time in less than two weeks, but Wall Street opened with a dizzying plunge that set off circuit breakers.

EU finance ministers were planning a coordinated economic response to the virus, which the European Commission says could push the European Union into recession.

Leaders of the G7 countries were due to hold a video conference on Monday to discuss a joint response.

European stocks fell on Monday to their lowest level since 2012, with investors still worried about the threat to the global economy. Wall Street’s S&P 500 index fell more than 9% as trading resumed after an initial automatic 15-minute cutout.

In Italy, hardest-hit country in Europe, there were 368 new deaths from the COVID-19 outbreak on Sunday, a daily toll more dire than even China was recording at the peak of the outbreak that first hit its central city Wuhan.

“Many children think it is scary,” Norwegian Prime Minister Erna Solberg told a news conference, at her office, dedicated to answering children’s questions about the pandemic.

“It is okay to be scared when so many things happen at the same time.”

Several countries banned mass gatherings such as sports, cultural and religious events to combat the disease that has infected over 169,000 people globally and killed more than 6,500.

Just a month ago, financial markets were hitting record highs on the assumption that the outbreak would largely be contained in China. But there have now been more cases and more deaths outside mainland China than inside.

New York Mayor Bill de Blasio said on Sunday he was ordering restaurants, bars and cafes to sell food only on a take-out or delivery basis. He also said he would order nightclubs, movie theatres, small theater houses and concert venues to close.

“These places are part of the heart and soul of our city,” he said. “But our city is facing an unprecedented threat, and we must respond with a wartime mentality.”

Los Angeles Mayor Eric Garcetti issued similar orders.

Spain and France, where cases and fatalities have begun surging at a pace just days behind that of Italy, imposed severe lockdowns over the weekend.

The Middle East business and travel hub of Dubai said it was closing all bars and lounges until the end of March. Thailand plans to close down schools, bars, movie theatres and popular cockfighting arenas.

“The worst is yet ahead for us,” said Dr Anthony Fauci, the top infectious diseases expert in the United States.

GETTING WORSE IN ITALY

U.S. Surgeon General Dr Jerome Adams said it was important to react aggressively.

“Do we want to go the direction of South Korea and really be aggressive and lower our mortality rates or do we want to go the direction of Italy?” he told Fox News.

Italy’s Prime Minister Giuseppe Conte told daily Corriere della Sera that the outbreak was still getting worse, though the governor of Lombardy, the northern region that has suffered the worst, said he saw the first signs of a slowdown.

Britain has asked manufacturers including Ford <F.N>, Honda <7267.T> and Rolls Royce <RR.L> to help make health equipment including ventilators to cope with the outbreak and will look at using hotels as hospitals.

The worldwide financial policy actions were reminiscent of the sweeping steps taken just over a decade ago to fight a meltdown of the global financial system, but the target now is forcing entire societies to effectively shut down.

“The issue for investors that still remains is that the virus’s economic impact is still not known, if this is a one-month event or if this is a one-year event, and how deep the cutback in consumer spending is going to be,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

Airlines said they would make more drastic cuts to their flying schedules, shed jobs and seek government aid because of sweeping global travel restrictions.

China said industrial output contracted at the sharpest pace in 30 years in the first two months of 2020.

The International Olympic Committee will hold talks with heads of international sports organisations on Tuesday, a source close to a federation briefed on the issue said, amid doubts the Tokyo 2020 Olympics starting on July 24 can proceed.

The Jewish faithful should avoid kissing the stones of the Western Wall, the chief rabbi of the Jerusalem site said.

And Starbucks <SBUX.O> has moved to a “to go” model in all its company-owned stores in the United States and Canada, the coffee chain said, temporarily abandoning reusable cups.

(Reporting by Doina Choicu, Leela de Krester in New York; Lindsay Dunsmuir, Nandita Bose, Howard Schneider and Ann Saphir in Washington; Guy Faulconbridge and Kate Holton in London; Jan Strupczewski and Francesco Guarascio in Brussels; Francesca Landini and Elvira Pollina in Milan; Kevin Yao in Beijing; Jaime Freed in Sydney; Gwladys Fouche in Oslo; Kay Johnson in Bangkok and Tracy Rucinski in Chicag; Writing by Raju Gopalakrishnan and Nick Macfie; Editing by Stephen Coates, Timothy Heritage and Peter Graff)

Fed cuts rates and NYC, LA close restaurants to fight coronavirus

By Lindsay Dunsmuir and Nandita Bose

WASHINGTON (Reuters) – With panic buying on Main Street and fear-driven sell-offs on Wall Street, the U.S. Federal Reserve cut interest rates to near zero on Sunday in another emergency move to help shore up the U.S. economy amid the rapidly escalating coronavirus pandemic.

The mayors of New York City and Los Angeles ordered restaurants, bars and cafes closed, with takeout and delivery the only options for food sales. Movie theaters, small theater houses and concert venues were also ordered closed as the U.S. death toll from the outbreak hit 65.

“The virus can spread rapidly through the close interactions New Yorkers have in restaurants, bars and places where we sit close together,” said New York Mayor Bill de Blasio. “We have to break that cycle.”

For the second time since the financial crisis of 2008, the Fed cut rates at an emergency meeting, aiming for a target range of 0% to 0.25% to help put a floor under a rapidly disintegrating global economy.

U.S. President Donald Trump, who had openly pressed the Fed for further action, called the move “terrific” and “very good news.”

Store shelves have been stripped bare of essentials, schools closed and millions of jobs in jeopardy as businesses temporarily shut their doors.

“We’re learning from watching other countries,” Trump said. “It’s a very contagious virus … but it’s something that we have tremendous control of.”

Trump has faced criticism at home and abroad for sometimes downplaying the seriousness of the coronavirus and overstating his administration’s ability to handle it.

Dr. Anthony Fauci, the nation’s top infectious diseases expert, said the United States was entering a new phase of coronavirus testing but tempered the president’s optimism.

“The worst is yet ahead for us,” Fauci said, a warning he has issued frequently in the past week. “It is how we respond to that challenge that is going to what the ultimate end point is going to be.”

U.S. Vice President Mike Pence said testing for coronavirus was expanding with more than 2,000 labs across the country ready to process tests and 10 states operating drive-through testing.

The United States has lagged behind other industrialized nations in its ability to test for the coronavirus. In early March, the Trump administration said close to 1 million coronavirus tests would soon be available and anyone who needed a test would get one, a promise it failed to keep.

With limited testing available, U.S. officials have recorded nearly 3,000 cases and 65 deaths, up from 58 on Saturday. Globally more than 162,000 are infected and over 6,000 have died.

The U.S. Centers for Disease Control on Sunday recommended that events with gatherings of 50 or more people over the next eight weeks be postponed or canceled.

DON’T HOARD

The White House appealed to Americans not to hoard as the coronavirus spreads, reassuring them that grocery supply chains were strong.

Trump held a phone call on Sunday with 30 executives from grocery stores including Amazon.com Inc’s <AMZN.O> Whole Foods, Target Corp <TGT.N>, Costco Wholesale Corp <COST.O> and Walmart Inc <WMT.N>, the White House said.

“Have a nice dinner, relax because there’s plenty, but you don’t have to … you don’t have to buy the quantities,” Trump said. “We’re doing really, really well. A lot of good things are going to happen.”

Trump tested negative for coronavirus, his doctors said on Saturday, as the president extended a travel ban to Britain and Ireland to try to slow the pandemic.

Trump’s spokesman, Judd Deere, said temperature checks will be conducted on everyone who enters the White House grounds, beginning Monday morning.

Travelers returning to the United States and being screened for the coronavirus were met by long lines and massive delays at some major airports, prompting federal officials to deploy more staff and Trump to appeal for patience.

Joe Biden and Bernie Sanders, squaring off in a Democratic debate, blasted Trump’s handling of the coronavirus and touted their own plans to deal with it.

In their first one-on-one debate, the two Democratic contenders to face Trump in the November election said the Republican president had contributed to worries about the pandemic by minimizing the threat before declaring a national emergency on Friday.

CLOSURES EXPAND

The U.S. containment measures have so far been mild compared to the nationwide lockdowns imposed in Italy, France and Spain.

“I think Americans should be prepared that they are going to have to hunker down significantly more than we as a country are doing,” Fauci said on NBC’s “Meet the Press.”

Even though Americans are not barred from going to the movies, ticket sales in North America fell to their lowest level in more than two decades this weekend, according to measurement firm Comscore.

Democratic New York State Governor Andrew Cuomo announced that schools in New York City, Westchester, Nassau and Suffolk counties would close from Monday, and he called on Trump to mobilize the Army Corps of Engineers to create more hospital beds.

Cuomo had been criticized for not closing schools as other states have done, given that New York has a large cluster of coronavirus cases.

A clinical trial to evaluate a vaccine designed to protect against coronavirus will begin on Monday, the Associated Press reported, citing an unnamed U.S. government official.

It would take a year to 18 months to fully validate any potential vaccine, the AP added, citing public health officials.

(For an interactive graphic tracking global spread of coronavirus, open https://tmsnrt.rs/3aIRuz7 in an external browser.)

(Reporting by Doina Chiacu, Lindsay Dunsmuir, Andrea Shalal, Nandita Bose, Matt Spetalnick, Humeyra Pamuk, John Whitesides, Steve Holland in Washington; Writing by Lisa Shumaker and Matt Spetalnick; Editing by Daniel Wallis, Diane Craft, Lincoln Feast and Gerry Doyle.)

Explainer: Fed may go into its crisis tool kit soon. What’s in it?

Reuters
By Jonnelle Marte and Howard Schneider

(Reuters) – Analysts and economists increasingly expect the Federal Reserve to roll out measures beyond interest rate cuts and bond purchases to ensure financial markets keep operating smoothly and banks have ample liquidity during the coronavirus outbreak.

The unexpected move by aircraft maker Boeing Co  to draw on nearly $14 billion in credit lines from its banks, as travel restrictions aimed at containing the pandemic hurt its customers, illustrates the stress that some corporate credit markets are already starting to feel.

The Fed, which delivered an emergency rate cut last week and is expected to lower them more when it meets next week, has already taken steps to ensure liquidity in the banking system by substantially increasing the support it provides to overnight lending markets.

But the central bank has an array of other emergency lending facilities and other tools it used during the 2007-2009 financial crisis that it could turn to if needed to keep credit markets from freezing up during times of stress.

“The playbook story in these events is that the Fed would always be a provider of liquidity as needed,” said Nellie Liang, a senior fellow in economic studies at the Brookings Institution and former director of the Division of Financial Stability at the Federal Reserve Board.

Some steps the Fed can take on its own under existing authority, while others might require partnering with the Treasury Department or expanded authority from Congress.

But here is a look at some of the tools that could be adjusted or revived to support markets if credit conditions worsen significantly:

** Discount window

The Fed’s lending tool of last resort is rarely used because banks are worried that borrowing from the window could make them appear weak. But policymakers could start by reminding banks that “the discount window is open, please use it,” said Liang. Fed officials could also make the credit more attractive by lowering the rate they charge or extending the length of the loans offered from one day to 30 days or 90 days.

** Term Auction Facility (TAF)

The Fed rolled out the TAF in 2007 as a way to offer loans to banks that were too hesitant to turn to the discount window. The TAF lacked some of the stigma associated with the discount window because of the way the loans were issued. Financial firms had to bid for the funding, which meant that the rate they paid would be viewed as being determined by the market, and not as a penalty rate.

The money also was not disbursed until three days later, suggesting that the banks who borrowed in that way were not in immediate need of cash.

“It is a signal that you are not desperate,” said Liang. The Fed closed the facility in March 2010.

** Commercial paper funding facility (CPFF)

In the financial crisis, establishing the CPFF was the closest the Fed came to making direct loans to non-financial businesses.

The commercial paper market is a key source of short-term funding for a range of businesses. When it froze up in 2008, the Fed created the CPFF to help reopen that market by purchasing high-rated, asset-backed commercial paper at three-month maturities. The facility was closed in 2010.

Some measures of potential stress have appeared in this market. The spread on borrowing rates between the highest-rated non-financial borrowers and the next tier below them has widened notably this month. It is now the widest in nearly two years.

It is too early to say if the current stress will grow to an extent that allows the Fed to reopen such a facility under the “unusual and exigent circumstances” section of the Federal Reserve Act, which allows it to lend to businesses and individuals.

** Central bank liquidity swaps

The Fed has standing agreements with five other major foreign central banks – the Bank of Canada, European Central Bank, Bank of England, Bank of Japan and Swiss National Bank – that allows them to provide dollars to their financial institutions during times of stress. These were converted from temporary to standing arrangements in 2011.

The Fed could roll out more agreements with other central banks not currently party to the standing agreements to increase access to dollars if needed.

** What else?

The central bank could create new tools more tailored to today’s market, said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. “Many of these were created for the specific issues that were plaguing the financial system back then,” said Bostjancic.

“What it shows is the Fed can be innovative.”

(Reporting by Jonnelle Marte and Howard Schneider; Editing by Dan Burns and Andrea Ricci)

Fed slashes rates in emergency move to combat coronavirus risks

WASHINGTON (Reuters) – The U.S. Federal Reserve cut interest rates on Tuesday in an emergency move designed to shield the world’s largest economy from the impact of the coronavirus.

It was the Fed’s first emergency rate cut since 2008 at the height of the financial crisis, underscoring how grave the central bank views the fast-evolving situation.

In a statement, the central bank said it was cutting rates by a half percentage point to a target range of 1.00% to 1.25%.

“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate,” the Fed said a statement.

The decision was unanimous among policymakers.

In a news conference, Federal Reserve Chair Jerome Powell said the coronavirus would weigh on the U.S. economy for some time. He said he believed the central bank’s action would provide “a meaningful boost to the economy.”

“We saw a risk to the outlook for the economy and chose to act,” Powell said. “I do know that the U.S. economy is strong.. I fully expect that we will return to solid growth and a solid labor market as well.”

The Fed’s decision to cut interest rates before its next scheduled policy meeting on March 17-18 reflects the urgency with which the Fed feels it needs to act in order to prevent the possibility of a global recession.

U.S. stocks initially surged on the move, which had increasingly been expected as it became evident the coronavirus would not be contained to its epicenter in China. With 90,000 cases worldwide in 77 countries and territories, the virus has upended global supply chains, triggered cancellations of sports events, business meetings and other large gatherings, and torpedoed global stock prices on fears it could cause a recession.

Equities reversed many of their initial gains within minutes of the unscheduled announcement by the Federal Open Market Committee, the central bank’s policy arm. U.S. Treasury debt prices surged, sending bond yields lower. Interest-rate futures traders immediately began pricing in even more rate cuts in coming months.

“Normally, markets would welcome a rate cut, and they were hoping for it,” said Peter Kenny, Founder of Kenny’s Commentary LLC. “Now that we’ve got it, the question is what’s next.”

Powell had earlier on Tuesday taken part in a conference call with the top finance authorities from the world’s seven largest economies, which concluded with a statement that they would take all appropriate measures to support the economy. At his news conference, Powell said the Fed was in active discussions with other central banks.

“I’m a little surprised. I didn’t expect that at 10 o’clock today, I thought you’d see something coordinated among central banks,” said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York.

U.S. Treasury Secretary Steven Mnuchin applauded the Fed’s decision, saying it would help the U.S. economy. In a tweet after the Fed move, President Donald Trump called on the central bank to cut even more. “More easing and more cutting,” he said.

(Reporting by Lindsay Dunsmuir and Ann Saphir; Editing by Dan Burns and Andrea Ricci)