United States Government
As the world's largest economy, the U.S. has been at the forefront of taking the initiative to help its citizens and businesses survive financially during the shutdown and help them get back on their feet afterward. The main action taken by the government was the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a more than US$2 trillion economic relief package that includes several important programs and was signed into law by President Donald J. Trump on 27 March 2020.
Economic Impact Payments
The act provided "Economic Impact Payments" of up to US$1,200 per adult for individuals making less than US$99,000 (US$198,000 for households filing jointly) and US$500 per child under 17 years old, or up to US$3,400 for a family of four. Social Security recipients who did not file tax returns in 2018 or 2019 were also eligible for the US$1,200 payments. The payments were distributed via direct bank deposit or by a mailed paper check.
Paycheck Protection Program
The CARES Act included creation of the Paycheck Protection Program (PPP), which is run by the Small Business Administration (SBA) with support from the Treasury Department. The PPP was designed to help small businesses keep their employees on the payroll rather than laying them off. To that end, the SBA provided funds to cover up to 8 weeks of costs associated with payroll, including benefits. Funds can also be used to pay rent, interest on mortgages, and utilities. Loans are forgiven provided the borrower adheres to the rules.
Some nonprofit organisations are also eligible under the program, as are independent contractors and the self-employed.
Employee Retention Credit
Employers of all sizes that keep employees on the payroll are eligible for a 50% tax credit on up to US$10,000 of wages paid or incurred from 13 March 2020 through 31 December 2020.
A separate, preexisting SBA program, called the Economic Injury Disaster Loan (EIDL) program, provides up to US$2 million of financial assistance, including loans, to small businesses and nonprofits that have suffered "substantial economic injury" as a result of a declared disaster, including the COVID-19 pandemic. The business must be located in a declared disaster area or a contiguous county, but in the case of the pandemic, the entire U.S. is covered.
EIDL recipients can get a US$10,000 advance to cover a temporary loss of revenue that does not have to be repaid.
Tax Credits For Sick Leave
President Trump also signed into law on 18 March 2020 the "Families First Coronavirus Response Act (the "FFCRA"), which provides businesses with less than 500 employees, as well as some self-employed people, with refundable tax credits that reimburse them for the cost of paying employees on sick and family leave due to COVID-19. Workers can receive up to 80 hours of paid sick leave and up to an additional 10 weeks of paid family leave.
Payroll Tax Deferral
Small businesses and self-employed individuals can defer paying the employer's share of Social Security over 2 years, with half of the payment due by the end of 2021 and the other half due by 31 December 2022.
The Treasury Department and the Internal Revenue Service (IRS) also deferred until 15 July 2020 any tax filings and payments on federal income taxes that were normally due on 15 April. Many states did the same with their taxes.
The CARES Act allowed holders of individual retirement accounts (IRAs) under the age of 59.5 to take distributions up to US$100,000 in 2020 without penalty. Normally, distributions prior to that age are subject to a 10% penalty. In addition, holders of IRAs may take up to 3 years to pay any income tax due on IRA distributions in 2020; normally, tax due on IRA distributions is payable the year in which they are taken.
The CARES Act also allowed holders of IRAs and other similar retirement plans, such as 401(k) plans, to skip required minimum distributions (RMDs) for 2020. Normally, holders of these accounts are required to take RMDs each year after age 70.5 (age 72 after 1 January 2020). The IRS subsequently announced in June that individuals who had already taken RMDs prior to enactment of the law could roll those funds back into their retirement accounts without penalty.
Enhanced Unemployment Benefits
For those workers that were laid off due to the virus, the CARES Act provided them with an additional US$600 per week on top of their eligible state unemployment benefits. The bonus payments were slated to run through 31 July 2020.
In addition, laid-off workers are eligible to collect an additional 13 weeks of state unemployment benefits even after their regular benefits expire, which usually happens after 26 weeks. In other words, the unemployed are eligible to collect benefits for as long as 39 weeks if necessary. Self-employed people who are normally not eligible for state unemployment benefits are entitled to these benefits as well.
The U.S. government is also providing generous temporary debt relief—but not forgiveness—to consumers who have trouble meeting their loan payment obligations as a result of the virus.
For example, the CARES Act allows borrowers with federal guaranteed mortgages to apply for forbearance for up to two consecutive periods of 180 days (nearly 1 years). Those include loans purchased, securitised or guaranteed by Fannie Mae or Freddie Mac, the Department of Housing and Urban Development, the Department of Veterans Affairs, or the Department of Agriculture.
Lenders are required to grant the forbearance merely for the asking, although borrowers must attest to—but not prove—a financial hardship caused by the pandemic that prevents them from making loan payments. During the forbearance, period lenders cannot assess any additional interest, fees or penalties on the borrower as long as they were current up to that time, nor can missed payments be reported to credit bureaus. Any missed payments are added to the end of the borrower's loan.
Likewise, people with federal student loans had their payments and interest on their loans automatically stopped until 30 September 2020. Borrowers did not have to apply for the forbearance, and they were permitted to continue paying if they chose.
Student loans from private lenders, such as banks, credit unions, schools and other entities, were not eligible for this program, although the vast majority of student loans come from the federal government. However, many private lenders offered their own forbearance options.
State And Local Governments Aid
The CARES Act includes a US$150 billion Coronavirus Relief Fund that makes payments to state and local governments, U.S. territories and tribal governments to cover necessary payroll expenses incurred due to the pandemic.
U.S. Federal Reserve Actions
In addition to what the Treasury Department and other government agencies are doing, the Federal Reserve, the U.S. central bank, has created a host of new or expanded existing programs to help businesses and government agencies cope with the crisis and taken several monetary policy changes to ease the impact of the crisis.
Lower Interest Rates
On 3 March 2020, the Fed's Federal Open Market Committee (FOMC) voted unanimously to lower the target range for its benchmark federal funds rate by 50 basis points, to 1% to 1.25%. Less than two weeks later, at an unscheduled meeting on Sunday, 15 March, the FOMC voted to reduce its target rate by a full percentage point to between 0 percent and 0.25%.
On 10 June, following the FOMC's regularly scheduled monetary policy meeting, Fed Chair Jerome Powell said the Fed doesn't expect to raise interest rates for several years. "We're not even thinking about thinking about raising rates," he said at his post-meeting press conference.
At that same meeting, the Fed pledged to buy, for the foreseeable future, at least US$80 billion in Treasury securities and US$40 billion in government-guaranteed mortgage-backed securities a month.
Corporate Bond Purchases
On 23 March the Fed said it would buy U.S. corporate bonds for the first time through the newly created Secondary Market Corporate Credit Facility (SMCCF). The Fed said it would buy in the secondary market investment-grade corporates as well as bonds that were investment grade as of 22 March, meaning they may have slipped below investment grade as a result of the virus and economic shutdown. The Fed said it will also buy corporate bond exchange-traded funds.
The Fed also said it would buy bonds from and make loans directly to corporations through a Primary Market Corporate Credit Facility.
Main Street Lending Program
The US$600 billion Main Street Lending Program provides 5-year loans up to US$500,000 for small and medium-sized businesses, with no payments for 2 years. The loans are made through banks, but the Fed is buying as much as 95% of those loans from the banks, which will allow lenders to make even more loans.
Municipal Liquidity Facility
The MLF provides up to US$500 billion in loans to states and municipalities to help them manage cash flow stresses caused by the pandemic. The program is open to all states, the District of Columbia, cities with a population of at least 250,000, counties with more than 500,000 people, and some multistate agencies.
Commercial Paper Funding Facility
In conjunction with the Treasury Department, the Fed established a Commercial Paper Funding Facility (CPFF) to purchase highly-rated unsecured and asset-backed paper directly from eligible companies. The intention is to remove any risk concerns investors may have that CP issuers won't be able to repay them or to roll over their maturing paper. The Treasury is providing US$10 billion of credit protection to the Fed.
Money Market Mutual Fund Liquidity Facility
Run through the Federal Reserve Bank of Boston, this program will help money market funds to meet redemption demands from investors should they be unable to do so on their own. This program is also backed by US$10 billion of credit protection from the Treasury.
Primary Dealer Credit Facility
This program will provide credit, from overnight to up to 90 days, to primary dealers in U.S. Treasury securities to support the smooth functioning of the government bond market.
FIMA Repo Facility
The Fed created a temporary repurchase agreement facility for foreign and international monetary authorities (FIMAs) that will allow central banks and other international monetary agencies with accounts at the New York Fed to enter into repurchase agreements with the Fed. The program is intended to provide an alternative source of U.S. dollars other than securities sales and thus ease strains in U.S. dollar funding markets.
Paycheck Protection Program Liquidity Facility
This facility provides loans and additional liquidity to both depository and non-depository lenders that make PPP loans. The Fed loans are collateralised by the PPP loans themselves and essentially enable lenders to make more PPP loans to small businesses.
Term Asset-Backed Securities Loan Facility
The Fed's Term Asset-Backed Securities Loan Facility (TALF) will buy asset-backed securities collateralised by a variety of consumer and small business loans, including student loans, auto loans, credit card balances and loans guaranteed by the SBA.
The Fed, along with the two other main bank federal bank regulatory agencies (the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency), temporarily eased capital rules on banks. The rule change allows depository institutions to exclude Treasury securities and deposits at the Fed's regional banks from their supplementary leverage ratios to allow them to expand their balance sheets in order to make more loans to businesses and consumers.
Following a stress test "sensitivity analysis" of their resilience under three separate hypothetical coronavirus economic scenarios, the Fed ordered large American banks to cap their dividend payments and suspend stock buybacks for the third quarter of 2020 in order to preserve capital.
However, the Fed didn't mandate a halt on dividend payments, as the Bank of England and the European Central Bank did. The Fed ordered banks to re-evaluate their longer-term capital plans and said it will review banks each quarter to determine if adjustments to the order are needed.
In order to encourage banks to borrow through its "discount window" in order to "address potential funding pressures," the Fed lowered the rate on these loans by 150 basis points to 0.25% and increased the length of loans through it to as long as 90 days. In normal times, banks generally try to avoid borrowing through the discount window because it seen as a "last resort" and could imply that the bank is in financial difficulty.
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