(Adds recent repo program)By Jonnelle MarteMarch 31 (Reuters) - The Federal Reserve has moved intooverdrive to try to keep the U.S. economy from suffering lastingdamage from the coronavirus pandemic, announcing an emergencyinterest rate cut on March 3 and rolling out new efforts almostweekly since, including slashing rates to zero and relaunchinglarge-scale asset purchases.The U.S. central bank, arguably the most powerful financialinstitution on Earth, has more than $5.3 trillion of assets onits books - the equivalent of roughly a quarter of annual U.S.economic output before the crisis. Its stockpile of assets willgrow much larger under the litany of programs it has launched,although some will be held in what are known as special-purposevehicles, or SPVs, rather than directly by the central bank.Here's a look at some of the steps taken by the Fed so far:
** RATE CUTSThe Fed cut rates twice on an emergency basis this month,the first time it has done that since the financial crisis in2008. The first cut of a half percentage point was on March 3and the second of a full point was on March 15, which broughtthe Fed's overnight borrowing rate for banks back to near zero.The reduction is meant to keep down the cost of loans for banks- and by extension their customers - to ensure borrowers haveample access to credit during the crisis.
** REPO MARKETThe Fed has been intervening in money markets since lastfall, when a cash shortage led to a jump in short-term borrowingrates. Policymakers had planned this year to scale backoperations in the market for repurchase agreements, or repo,through which dealers can borrow cash. But as the economicthreat posed by the coronavirus increased, the central bankpivoted to offering almost unlimited support in the overnightlending markets for cash. On March 31, the Fed also announcedthat it broadened its repo agreements with foreign centralbanks, allowing them to exchange their holdings of U.S. Treasurysecurities for overnight dollar loans.
** QUANTITATIVE EASING (QE)The Fed first employed QE in the financial crisis, startingin 2008. The idea is that through large-scale purchases ofvarious types of bonds - mostly Treasuries and mortgage-backedsecurities - it helps ensure that longer-term interest rateslike those for mortgages and car loans remain low and helps keepmajor purchases affordable for consumers and businesses. When itcut rates back to near zero on March 15, the Fed restarted theselarge-scale purchases and is now doing so with an open-endedcommitment.
** DISCOUNT WINDOWBanks in recent weeks have borrowed the most since 2009 fromthe Fed's lending tool of last resort at the urging of thecentral bank. The so-called "discount window" is rarely usedbecause banks are worried that using it could make them appearweak. But policymakers have lowered the rate charged on thefunding to 0.25% and extended the length of the loans offeredfrom one day to 90 days. As of last Wednesday, banks hadborrowed more than $50 billion.
** CENTRAL BANK FOREIGN CURRENCY SWAP LINESThe Fed has standing agreements with five other majorforeign central banks - the Bank of Canada, European CentralBank, Bank of England, Bank of Japan and Swiss National Bank -that allows them to provide U.S. dollars to their financialinstitutions during times of stress. The Fed has increased thefrequency of the operations to daily from weekly. It alsooffered temporary swap lines to nine additional countries to ease access to dollars, whichare in high demand because the liabilities of many foreigngovernments and companies are denominated in the U.S. currency.
** TERM ASSET-BACKED SECURITIES LOAN FACILITY (TALF )Through an SPV, the TALF program will buy bundles of assetssecured by auto loans, credit cards, student loans, loans backedby the Small Business Administration and other types of credit.Its aim is to make sure banks and other lenders such as autofinance companies have ample cash to keep making loans toconsumers and businesses during the crisis.
** COMMERCIAL PAPER FUNDING FACILITY (CPFF )The Fed reintroduced the CPFF, a tool it used during thelast financial crisis, to get money directly into the hands oflarge businesses, which are major employers. Like the TALF, itwill use an SPV to make purchases of commercial paper, anessential source of short-term funding for many companies. Themarket had come under strain amid worries that companies hit byefforts to slow the spread of the coronavirus would not be ableto repay their IOUs.
** PRIMARY DEALER CREDIT FACILITY (PDCF )
Through this facility, the Fed offers short-term loans tothe two dozen Wall Street firms authorized to transact directlywith the central bank. The program offers funding of up to 90days to primary dealers. A similar program run from 2008 to 2010only offered overnight loans.
** PRIMARY MARKET CORPORATE CREDIT FACILITY (PMCCF )With this program, the Fed will act as a backstop forcorporate debt issued by highly rated companies. Through an SPV,the PMCCF will buy bonds and issue loans to companies that canhelp them cover business expenses and stay in operation. Thedebt must be repaid to the PMCCF within four years.
** SECONDARY MARKET CORPORATE CREDIT FACILITY(SMCCF )Closely related to the PMCCF, under this program an SPV willpurchase corporate bonds and exchange-traded funds in thesecondary market, or the public market where these securitiesare traded after they are first issued. The market liquidityadded by the Fed is meant to stabilize conditions in thecorporate bond market and make it easier for companies to raisefunds there. Only so-called investment grade securities areeligible for purchase.
** MONEY MARKET MUTUAL FUND LIQUIDITY FACILITY (MMFLF )This new facility is meant to keep the $3.8 trillion moneymarket mutual fund industry functioning even when investors arewithdrawing money at a fast clip. The tool offers loans of up toone year to financial institutions that pledge as collateralhigh-quality assets like U.S. Treasury bonds that they havepurchased from money market mutual funds. The Fed indirectlyencourages banks to buy assets from money market funds, reducingthe odds that the funds will need to sell those assets at a lossto meet redemptions.
(Reporting by Jonnelle Marte;
Editing by Dan Burns and Andrea Ricci)