Regulatory and Tax Updates
The Fed Announces New Facilities to Provide Up to $2.3 Trillion in Liquidity
The Federal Reserve is taking actions to
- Support the SBA’s Paycheck Protection Program (PPP),
- Support the flow of credit to households and businesses, and
- Help state and local governments manage cash flow stresses.
On April 9, 2020, the Federal Reserve announced additional measures being taken to provide up to $2.3 trillion in loans to support the economy. These measures will support flow of credit in our economy and strengthen state and local governments’ ability to deliver critical services during the COVID-19 pandemic.
Main Street New Lending Facility (MSNLF) and Main Street Expanded Loan Facility (MSELF)
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The Federal Reserve has announced the formation of two facilities aimed at assisting banks, bank holding companies, and credit unions and preserving main street businesses. The two facilities, the MSNLF and MSELF, will provide opportunities for entities to sell loans to the Federal Reserve Banks. MSNLF is for qualifying loans originated after April 8, 2020 and MSELF is for qualifying loans originated April 8, 2020 and prior.
The facilities will allow the Federal Reserve to purchase 95% of the qualifying loans through a newly formed special purpose vehicle. The terms are an unsecured (under the MSNLF) four-year loan with principal and interest deferred for one year. The rate will be variable and equal to the Federal Reserve’s Secured Overnight Financing Rate plus 250 to 400 basis points and can be prepaid without a penalty. Minimum and maximum loan sizes will vary between programs — refer to the Federal Reserve Board press release to access that information.
There are lender and borrower attestations, as well as facility, loan origination, and servicing fees. The facilities are expected to terminate their purchases on September 30, 2020, unless the Board and the Treasury decide to extend the MSLPF.
Paycheck Protection Program Lending Facility (PPPLF)
PPPLF is intended to aid lending by eligible depository institutions to small businesses under the Paycheck Protection Program (PPP) of the CARES Act. PPPLF will allow the depository institutions that originate PPP loans to borrow from this facility.
This borrowing will take place through the reserve district in which the depository institution is located. The collateral for this extension of credit will be exclusively PPP loans guaranteed by the SBA. There are no fees associated with this facility, and the rate on these borrowings will be 35 basis points. These loans will be treated as non-recourse and carry a zero-percent risk weighting for regulatory capital purposes.
Term Asset-Backed Securities Loan Facility (TALF)
TALF is intended to meet the credit needs of both consumers and businesses by facilitating the issuance of asset-backed securities (ABS) and improving the market conditions for such securities. View the TALF term sheet.
Primary Market Corporate Credit Facility (PMCCF) and Secondary Market Corporate Credit Facility (SMCCF)
PMCCF and SMCCF are being expanded to increase the flow of credit to households and businesses through the capital markets. Along with TALF, these programs will now support up to $850 billion in credit backed by $85 billion in credit protection by the Treasury.
Municipal Liquidity Program Facility
MLF will assist state and local governments with the management of cash flow pressures so that they may continue to serve households and businesses in their communities. The facility will purchase up to $500 billion of short-term notes directly from states, counties, and cities. State-eligible issuers may then use the proceeds to support additional counties and cities.
How we can help
Now more than ever, it’s important to understand your financial picture. CLA can help you navigate decisions today to improve the longer-term financial health of your organization. Whether you need insight into the strategies that impact cash flow or help finding disaster relief resources, we have professionals who understand the options and can assist throughout the process.Contact Us