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A Guide to the Federal Reserve’s COVID-19 Lending Facilities

Coronavirus, Finance and Securities

The Federal Reserve is the most independent arm of the federal government, yet it is perhaps the least understood by the general public. In controlling the nation’s monetary policy, the Fed attempts to maximize employment, monitor inflation, and regulate financial institutions. The Fed’s role, therefore, becomes especially critical during an economic crisis such as the one we are currently experiencing. The Federal Reserve Board created new lending programs as well as reinstated old ones to help mitigate damage to the economy after the onset of the pandemic. On July 28, the Federal Reserve extended the duration of its COVID-19 lending facilities to the end of 2020, many of which were scheduled to expire at the end of September. The Federal Reserve Board’s decision to extend the availability of their emergency programs to the end of the year shows that the nation’s top economists predict a long road toward recovery.

What do each of these programs do, and what is their designed purpose? Here is a beginner’s guide to understanding the Fed’s response to the pandemic.

Primary Dealer Credit Facility (PDCF)

A program that originally began during the 2008 Financial Crisis and was renewed in March 2020, the PDCF gives short term (up to 90 days) loans to primary dealers, banks, or other financial institutions that trade securities directly with the Fed to implement its monetary policy. The securities primary dealers already have are used as collateral for the loan. The program allows the top of the lending chain to have enough liquidity to continue offering loans to other businesses and financial institutions.

Money Market Mutual Fund Liquidity Facility (MMLF)

Money market funds are a type of mutual fund that invests in things like cash, bonds, and certificates of deposit, that are highly liquid and have a short term maturity date. They are essentially a low risk investment with a slightly higher return rate than bank deposits. These funds, however, are not insured by the FDIC like deposits in a bank. During the current economic crisis, more investors want to withdraw their money from the funds (this is referred to as increased outflows). Through the MMLF, the Fed loans money to financial institutions so they will invest in money market funds. This keeps the funds liquid in the face of increased outflows.

Primary Market Corporate Credit Facility (PMCCF)

The PMCCF is a subsidiary of the Fed that was created to help large employers reduce layoffs. The Fed loans money to the PMCCF, which in turn both buys corporate bonds and lends to corporations. This keeps credit available to corporations that have not received aid from the CARES Act. The loan payments can be deferred for up to 6 months. As the PPP was designed to keep small business employees on payroll, the PMCCF hopes to secure jobs for employees of larger businesses.

Secondary Market Corporate Credit Facility (SMCCF)

Like the PMCCF, the SMCCF is a Fed subsidiary that purchases corporate bonds from corporations that did not receive support from the CARES Act. However, the SMCCF purchases bonds from the secondary market. They buy from investors who already have corporate bonds, rather than purchase the bonds directly from the corporation. This encourages banks to lend to corporations because the lenders are ensured that there will be a demand for bonds in the secondary market.

Term Asset-Backed Securities Loan Facility (TALF)

This Fed subsidiary was originally created during the 2008 Financial Crisis. The TALF loans money to banks using those banks’ asset-backed securities (ABS) as collateral. By pooling a bank’s assets such as car loans, student loans, and Small Business Administration guaranteed loans, which are all illiquid, into asset-backed securities, the assets can be traded by investors. By allowing banks to use ABS as collateral for loans, TALF keeps banks liquid and able to continue lending money to small businesses and consumers.

Paycheck Protection Program Liquidity Facility (PPPLF)

The PPPLF is the Fed’s arm of the Paycheck Protection Program established by the CARES act. The PPPLF is the lending facility that provides the loans to financial institutions that in turn distribute money to small businesses. The PPP loans to small businesses are actually the collateral for the Fed’s loans to the banks.

Main Street Lending Program

Through the Main Street Lending Program, the Fed purchases 95% of loans issued from banks to small and medium sized businesses. The businesses do not have to pay interest for the first year, and they do not have to pay off the principal for the first two years. Nonprofits are also eligible for the loans. To participate, the business or nonprofit must be eligible for PPP funds. Main Street is intended to be a supplement to the PPP, allowing employers to maintain payroll throughout the economic crisis.

Municipal Liquidity Facility (MLF)

Since the beginning of the pandemic, state and local tax revenues have decreased dramatically. The MLF aims to ease this burden by having the Fed buy short term municipal notes directly from local governments. Municipal notes are debt securities issued by local governments. They usually mature in one year, with one payment made with interest at the time of maturity. By purchasing the notes, the Fed provides these governments with immediate cash. While the Fed is taking the steps within its power to support state and local governments, local officials are hoping for additional federal stimulus with more direct assistance for municipalities.


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