80.4 F
Fort Worth
Sunday, September 20, 2020
- Advertisements -
Banking Fed to try to ease flow of credit with new lending facility

Fed to try to ease flow of credit with new lending facility

Other News

Exxon’s oil slick

Exxon Mobil is slashing its capital spending budget for 2020 by 30% due to weak demand caused by the COVID-19 pandemic and a market...

Folk music’s Mark Twain: 7 Essential tracks from John Prine,

NEW YORK (AP) — Some people, the songs just come out of them. For nearly half a century, they tumbled out of John Prine...

Tarrant County records another COVID-19 death

Tarrant County Public Health (TCPH) on Wednesday, April 8 reported that a resident of Euless has died as the result of the COVID-19 virus....

Tradition stymied: A year unlike any since WWII for Augusta

The Masters is so intertwined with Augusta, they added an extra day to spring break.You see, the first full week of April isn't just...

WASHINGTON (AP) — In its latest emergency action, the Federal Reserve is establishing a lending facility to try to ease the flow of short-term credit to banks and businesses as the economy grinds to a halt from the viral outbreak.

The Fed announced Tuesday that it’s reviving a program it first used during the 2008 financial crisis to unclog a short-term lending market for what is known as “commercial paper.” Large businesses issue commercial paper to raise cash to meet payrolls and cover other short-term costs.

“An improved commercial paper market will enhance the ability of businesses to maintain employment and investment as the nation deals with the coronavirus outbreak,” the Fed said in a statement.

Borrowing rates in the commercial paper market have been spiking as more companies have sought to raise cash in the expectation that their revenue will plunge.

At the same time, money market funds, among the largest buyers of the short-term loans, are seeking to sell commercial paper themselves. They need to raise money because they expect large institutional investors to withdraw funds, and they need cash to cover those withdrawals.

All that activity has made it harder for banks and other companies to raise the cash they need.

In its announcement, the Fed said it set up the investment vehicle to buy commercial paper with the approval of the Treasury Department. The Treasury has also committed to guarantee up to $10 billion of the loans to prevent the Fed from taking losses. Companies that borrow through the facility will pay a small fee and interest.

The lending program was created with the approval of Treasury Secretary Steven Mnuchin, whose authorization is required for the creation of emergency programs by the Fed.

“The economic disruption and uncertainty created by COVID-19 has created challenges for the commercial paper market, constraining access to short-term credit for American businesses,” Mnuchin said.

Tuesday’s Fed action comes after the central bank unleashed a massive program of stimulus Sunday, when it cut its benchmark short-term interest rate to near zero and said it would purchase $700 billion in bonds. The Fed also allowed banks to lend from cash reserves that it had previously required banks to hold.

Many analysts say they expect the Fed to revive other financial-crisis-era programs in the coming days, including one known as the term auction facility, or TAF. This facility allows a wider array of banks to borrow from the Fed and to pledge a range of collateral, such as corporate bonds, rather than just Treasuries.

- Advertisements -
- Advertisements -

Latest News

Can Trump and McConnell get through the 4 steps to seat a Supreme Court justice in just 6 weeks?

Caren Morrison, Georgia State University United States Supreme Court...

Trump backs proposed deal to keep TikTok operating in US; Texas mentioned as HQ

By STAN CHOE AP Business WriterNEW YORK (AP) — President Donald Trump said Saturday he's given his "blessing" to a proposed deal...

Texas bars and distilleries rip Gov. Greg Abbott for leaving them out of “unacceptable” reopening plan

By Dan Rosenzweig-Ziff, The Texas Tribune Sept. 19, 2020 "Texas bars and distilleries rip...

Supreme Court justices remember Ginsburg

'I loved her to pieces,' retired Justice Souter says of RBGWASHINGTON (AP) — The remaining eight Supreme Court justices, and two former...

No vote on RBG successor until after election, Collins says

By DAVID SHARP Associated PressRepublican Sen. Susan Collins said Saturday there should be no vote on a successor to the late Supreme...