Back in March 2020, the Fed had announced a plan to engage in the purchase of corporate bonds as part of its pandemic response to help stabilize credit markets. On May 11, 2020, the Federal Reserve Bank of New York announced that “the Secondary Market Corporate Credit Facility (SMCCF) [would] begin purchases of exchange-traded funds (ETFs) on May 12.”
Per its April 9, 2020 term sheet, the “SMCCF may purchase U.S.-listed ETFs whose investment objective is to provide broad exposure to the market for U.S. corporate bonds. The preponderance of ETF holdings will be of ETFs whose primary investment objective is exposure to U.S. investment-grade corporate bonds, and the remainder will be in ETFs whose primary investment objective is exposure to U.S. high-yield corporate bonds.” (See N.Y. Fed Statement). The Primary Corporate Credit Facility is expected to become operational in the “near future.”
On April 30, 2020, Christine Lagarde, President of the European Central Bank (ECB), announced new monetary policy measures in response to the economic crisis triggered by the COVID-19 pandemic. At an ECB press conference, Largarde first set the stage for further action, observing (at 8:30 minutes in): “The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime. Measures to contain the spread of the coronavirus (COVID-19) have largely halted economic activity in all the countries of the euro area and across the globe.”
After reviewing prior ECB action, Lagarde outlined (at 10:30 minutes in) new ECB steps including new incentives for bank lending: “Specifically, we decided to reduce the interest rate on TLTRO III [targeted longer-term refinancing] operations during the period from June 2020 to June 2021 to 50 basis points below the average interest rate on the Eurosystem’s main refinancing operations prevailing over the same period. Moreover, for counterparties whose eligible net lending reaches the lending performance threshold, the interest rate over the period from June 2020 to June 2021 will now be 50 basis points below the average deposit facility rate prevailing over the same period.” (See also Largarde’s written statement).
Estimates suggest that “[e]merging markets and developing countries have about $11 trillion in external debt and about $3.9 trillion in debt service due in 2020.” A Brookings Institution posting highlighting these numbers argued that the debt problem is not limited to a few countries: “One indication that the problem is widespread is that already 90 countries have approached the IMF to access emergency financing instruments. It seems clear that this is not just a low-income or an African country problem.” The posting advocates immediate, comprehensive and coordinated action. The major global financial players share similar concerns. At their April 15, 2020 virtual meeting, G20 Finance Ministers and Central Bank Governors agreed, among other actions, to suspend debt service for the poorest countries. The World Bank and IMF have announced their own relief actions. Others have advocated stronger relief measures including cancellation, not merely suspension of certain debt payments.
On Wednesday April 15, 2020, U.S. Treasury Secretary Mnuchin and SBA Administrator Carranza announced that the Payroll Protection Program, introduced by the CARES Act has exhausted its $349 billion appropriation in fewer than 14 days, noting that “[b]y law, the SBA will not be able to issue new loan approvals once the programs experience a lapse in appropriations . . . .[and] urg[ing] Congress to appropriate additional funds for the Paycheck Protection Program . . . at which point we will once again be able to process loan applications, issue loan numbers, and protect millions more paychecks.”
The April 7, 2020 emergency order requires companies with either 500 or more employees within the city of Los Angeles or 2,000 or more employees nationally to provide up to 80 hours of additional paid sick time for reasons related to COVID-19. The order, which covers individuals who perform any work in Los Angeles, aims to reach workers not covered by the federal paid sick leave legislation. A number of other cities — including San Francisco and Seattle — and states — including California, Colorado, Michigan, New Jersey, and New York — have also expanded leave policies in recent weeks.
An updated version of the Working Paper, Regulating in Pandemic: Evaluating Economic and Financial Policy Responses to the Coronavirus Crisis by Hiba Hafiz, Shu-Yi Oei, Diane M. Ring, and Natalya Shnitser has been posted. The Working Paper is revised and updated to incorporate the CARES Act (H.R. 748) as well as recent action by the Federal Reserve, the Department of Labor, and other agencies.
Over the past two weeks, the federal government has unleashed a series of new programs providing business loans, refundable tax credits, direct payments to Americans, and enhanced unemployment compensation — all in an effort to begin to manage the fallout from the COVID-19 crisis. In the midst of this flurry of legislative action and program rollouts, the GAO has issued a report detailing patterns of improper payments (estimated at almost $175 billion for fiscal year 2019) across 6 federal agencies. Although the report includes recommendations, some targeted and some more general, it seems unlikely that these agencies (or others looking on) can quickly learn from the analysis and modify systems as they race to distribute funds in an economic crisis. Moreover, in a time of constrained personnel resources due to COVID-19, stay-at-home orders, and overwhelming demand, agencies may find their ability to execute accurate delivery even more constrained than in the past.
Today, Treasury and the Small Business Administration (SBA) have released a sample application form and guidance for the Paycheck Protection Program (PPP) introduced in Section 1102 of H.R. 748 that passed last week. As Treasury characterizes the program, it “provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits” as well as pay interest on mortgages, rent, and utilities. Businesses with fewer than 500 employees can receive a maximum loan of $10million, which, if specified conditions are met, can be forgiven.
President Trump issued a signing statement on Friday that suggests he see limits on the extent of oversight to be provided by the new Special Inspector General for Pandemic Response (SIGPR). Created in the legislation, the SIGPR is intended to “conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments made by the Secretary of the Treasury under any program” under the new Act. The SIGPR is directed under the legislation to provide quarterly reports to Congress — and to inform Congress if agencies unreasonably refuse to provide requested information. In critiquing the role of the SIGPR in the signed bill, the President stated, “I do not understand, and my Administration will not treat, this provision as permitting the SIGPR to issue reports to the Congress without the presidential supervision required by the Take Care Clause, Article II, section 3.”
Justice Department Files Its First Enforcement Action Against COVID-19 Fraud
FCC Consumer Fraud Warnings: COVID-19 Consumer Warnings and Safety Tips
FDIC: Insured Bank Deposits are Safe; Beware of Potential Scams Using the Agency’s Name
Office of the Inspector General: Inspector General Warns Public About New Social Security Benefit Suspension Scam
Massachusetts guidance: Protect yourself from scams and fraud
Dining Bonds Initiative by Restaurant Industry Professionals (Mar, 16, 2020) (“Due to the impact that the coronavirus COVID-19 has had on the restaurant community, a collective of restaurant industry professionals have set a global initiative in motion to get funds into the hands of restaurants NOW, even if they are temporarily closed…A Dining Bond works like a savings bond, where you can purchase a “bond” at a value rate to be redeemed for face value at a future date.”)
Forbes Mortgage Relief Tracker (Mar. 20, 2020) (Tracking Federal, State, and Private Bank Mortgage Relief Programs)