The Size of Federal Reserve COVID-19 Programs

The Size of Federal Reserve COVID-19 Programs

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INSIGHTi
The Size of Federal Reserve COVID-19
Programs
February 9, 2021
In response to the financial and economic disruption caused by the Coronavirus Disease 2019 (COVID-
19) pandemic, the Federal Reserve (Fed) acted as lender of last resort to broad swaths of the financial
system. This Insight presents data on the size of the Fed’s response, which peaked at $793 bil ion in April
2020. CRS Report R46411, The Federal Reserve’s Response to COVID-19: Policy Issues, provides a full
description of the facilities and actions covered below.
Section 13(3) Facilities
The Fed created a series of temporary programs in response to the pandemic using its emergency
authority from Section 13(3) of the Federal Reserve Act. This was the third time the Fed used these
powers extensively following the Great Depression and the 2007-2009 financial crisis.
The first wave of programs attempted to stabilize overal financial market conditions, which experienced
il iquidity at the onset of the pandemic. The Commercial Paper Funding Facility (CPFF), Primary Dealer
Credit Facility (PDCF), and Money Market Mutual Fund Liquidity Facility (MMLF) became operational
between March 20 and April 14. These facilities supported shorter-term credit markets.
Later programs focused on longer-term credit markets, targeting groups that were harmed by the
pandemic. These programs—the Paycheck Protection Program Liquidity Facility (PPPLF), Secondary
Market Corporate Credit Facility (SMCCF), Term Asset-Backed Securities Loan Facility (TALF),
Municipal Liquidity Facility (MLF), and Main Street Lending Program (MSLP)—became operational
between April 16 and September 4. Of the second-wave programs, al but the PPPLF were backed by
CARES Act (P.L. 116-136) funding and permanently closed by P.L. 116-260. The first wave programs
and the PPPLF are scheduled to expire March 31, 2021, but could be extended again.
Assistance outstanding under 13(3) programs peaked at about $197 bil ion on April 15, 2020 (see Figure
1). Only the three first-wave programs were operational at that point and accounted for the entire amount
outstanding. Within one week, outstanding assistance under those facilities had more than halved, as
financial conditions improved rapidly. Outstanding assistance under al of the facilities hovered around
$100 bil ion for the rest of 2020 as use of those three facilities fel while the use of the other facilities
rose. In the second half of 2020, the largest program was the PPPLF.
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Figure 1. Fed Assistance Outstanding in 13(3) Facilities
3/1/20-12/31/20

Source: CRS calculations based on Federal Reserve data.
Notes: Treasury investments in facilities are netted out. See CRS Report R46411, The Federal Reserve’s Response to COVID-
19: Policy Issues, for details.
Other Actions to Boost Liquidity
The Fed also has other tools to increase overal liquidity in financial markets. In addition to using
emergency facilities, the Fed’s actions to boost market liquidity in the pandemic included the discount
window (DW), central bank swaps (CB swaps), and repurchase agreements (known as repos) (see Figure
2.)

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Figure 2. Fed Assistance During the Pandemic Excluding 13(3) Facilities
3/1/20-12/31/20

Source: CRS calculations based on Federal Reserve data.
Notes: FIMA = Foreign and International Monetary Authorities Repo Facility. See CRS Report R46411, The Federal
Reserve’s Response to COVID-19: Policy Issues, for details.
The Fed made short-term loans to banks through the DW, its traditional lender-of-last-resort tool. Lending
peaked at $51 bil ion on March 25, 2020. It fel sharply throughout the late spring and summer but
remained above normal levels throughout 2020.
Because foreign banks are reliant on U.S. dollar funding but cannot borrow from the DW, the Fed has also
al owed foreign central banks to swap their currencies for U.S. dollars (CB swaps) so that they can lend
those dollars to banks in their jurisdictions. Swaps outstanding peaked at nearly $450 bil ion in May 2020
but have been below $100 bil ion since August 2020 and below $10 bil ion since mid-October 2020. The
rapid uptake in swap lines during the pandemic underlines the world financial system’s reliance on U.S.
dollars as the world’s “reserve currency.”
The Fed also provided liquidity through repos, which are economical y equivalent to short-term
collateralized loans. Repos outstanding peaked at $496 bil ion on March 17 and have been zero since July
8, 2020. (The Fed also created the Foreign and International Monetary Authorities Repo Facility, which
saw little use.)
Although these actions received less scrutiny because they were not taken under the Fed’s emergency
authority and did not receive CARES Act backing, their influence on financial conditions was significant.
At their peak, the Fed extended more credit through both its repos and central bank liquidity swaps
(individual y) than it did through its 13(3) programs col ectively. These two tools and the DW are
permanently available.
Policy Considerations
Financial Stability
Collectively, these actions and others may have helped stave off a financial crisis that could have caused a
deeper recession. Instead, financial markets overal performed wel during the pandemic—to the point

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that some observers are now concerned that there is a financial bubble. This has raised concerns (cal ed
moral hazard) that if financial market participants come to expect the Fed to set up emergency facilities
whenever markets seize up, then they wil take on greater risks—increasing the likelihood of future crises.
Usage
For facilities with an announced size limit, usage turned out to be relatively low. There are at least two
possible explanations why. First, programs that might have been highly subscribed if financial instability
persisted were less needed or desired once financial conditions normalized. Second, the terms and
conditions of the Fed’s programs were not as attractive as comparable sources of private credit despite
repeated modifications by the Fed to make them more attractive. These explanations are not mutual y
exclusive, because those private sources of credit might not have been available (at least on similar terms)
if financial conditions had not normalized.
Risk to Taxpayers
Assistance extended under these programs must be repaid with interest. There is the potential for losses,
which would ultimately be borne by taxpayers, but for most programs, that possibility is smal because of
the programs’ many built-in safeguards. Instead, they may make a profit, as was the case for al of the Fed
programs created in the 2007-2009 financial crisis (many of which were revived in 2020).

Author Information

Marc Labonte

Specialist in Macroeconomic Policy

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
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