Central banks and governments announce emergency measures

By ECCT staff writers

Over the past few days, major central banks globally have announced massive monetary expansion plans while governments in European countries have announced a slew of fiscal stimulus plans to offset the huge drop in both supply and demand caused by the coronavirus epidemic.

The European Central Bank has announced a plan to expand its asset purchases by €750 billion over the next nine months while the US Federal Reserve has announced unprecedented measures to support the economy in the wake of the coronavirus outbreak.

The Fed pledged to buy government bonds in unlimited amounts as well as corporate debt. It unveiled two new facilities that allow it to purchase corporate bonds, something that it stopped short of doing during the 2008 financial crisis. The first facility involves bridge financing for up to four years for investment-grade companies, in exchange for purchases of newly issued corporate debt by the Fed. Under the plan, businesses could defer principal and interest payment to preserve cash for up to six months, but they would not be allowed to buy back shares or pay dividends if they tap the facility. A second programme would allow the Fed to purchase corporate debt in the secondary market. In an additional move yesterday, the Fed revived TALF, a facility dating back to the 2008 financial crisis, which gives the Fed the ability to buy securities backed by student, car and credit card loans, as well as loans to businesses.