The fed launches a new assistance programme, which provides loans through banks and credit unions participating in this program, and will focus on US companies with number of employees up to 15 000 people, or with revenues up to $5 billion the fed is also preparing to provide credit assistance to non-profit organizations.
On Monday, the Federal Reserve System (FRS) announced the launch of a loan program for businesses, called “Main Street”. This is another step the fed in the direction of aid the US economy in the crisis period of the pandemic COVID-19. Unlike the previously launched assistance programs that provide grants (funding not requiring subsequent return of funds), the new program stipulates that you are lending through banks and credit unions, the amount of which shall be reimbursed by the borrowers.
The fed also said that it would start to buy a separate “corporate bonds on the secondary market issued by U.S. companies that meet the minimum rating, maximum maturity, and other criteria”.
After two days of sharp decline, on Monday the major stock indexes of USA has increased significantly with the Dow Jones Industrial Average rose by 0.62%, the S&P 500 added 0.83 percent and the Nasdaq Composite rose by 1.43%.
The fed statement on Monday encouraged some investors, fearful of the risks of the second wave of morbidity COVID-19 in the country and announcement of recession by the National Bureau of economic research (NBER).
Analysts said the fact that the fed really follows the words of its President Jerome Powell that the Central Bank will use all its instruments to support the U.S. economy.
“This is another sign that the fed is going to do everything possible to help the level of liquidity in the US economy. Worried about the second wave (COVID-19)? Don’t worry, the fed acts!”, – wrote Ryan Detrick, senior market strategist at LPL Financial.
Lending program fed had been nearly three months and is designed to provide loans to companies in all sectors of the economy. This suggests that the fed takes on more obligations to help the economy than just the role of the lender in the banking sector.
The program is managed by the Boston Federal reserve and aimed at those businesses “Main Street” who is not entitled to apply for grants. To apply for this lending can US companies with number of employees up to 15 000 people, or with revenues up to $5 billion.
The maximum amount of credit Main Street program can range from $250 000 to $300 million, depending on the size of the company and a Bank or a credit Union participating in the programme of the fed. The budget of the program designed to make loans totaling up to $600 billion.
The fed buys 95% of the loans, the banks participating in the program, in turn, can set their own standards and additional requirements beyond those set by the fed.
Main Street get a loan for a period of five years, and during the first two years of payments on principal or interest will not be charged, giving businesses time to recover. Also no penalties for enterprises that repay their loans ahead of schedule.
Enterprises already receiving assistance in the form of free credits on state “protective salaries”, can also apply for funding under the Main Street program. However, those companies whose bonds the fed directly acquires within the corporate line of credit in the primary market, can not get loans within the program of Main Street.
The fed also said that it will openly publish the names of lenders and borrowers participating in the program Main Street, the public will be information about loan amounts, interest rates and other details.
The company, which will participate in this program, the fed will be limited in such aspects as awards to executives, redemption of shares and payment of dividends.
Currently, the Central Bank is preparing a similar programme for the five-year loans to nonprofit organizations, also play an important role in society. Apply for this preferential credit program of the nonprofit organization will be able soon after June 22, when the end of the public discussion and the formation of the program edition.
