Here are the moves of Fed, BoE and BoJ anti Covid. Bank of Italy report

Here are the moves of Fed, BoE and BoJ anti Covid. Bank of Italy report

The focus contained in the annual report of the Bank of Italy with the actions of central banks in the USA, UK, Japan and in emerging countries

The Federal Reserve.

The Federal Reserve has:

(a) lowered the target range of federal funds rates by 150 basis points (to 0.00-0.25 per cent);

(b) increased the supply of liquidity to counterparties through daily and weekly repurchase agreements ($ 500 and $ 1,000 billion, respectively);

(c) reduced the cost associated with the use of the discount window and zeroed the compulsory reserve ratio;

(d) created the Primary Dealer Credit Facility, to provide counterparties with loans guaranteed by a wide range of financial assets, such as mortgage-backed securities, asset-backed securities (ABS), corporate bonds and commercial paper.

The US central bank has also implemented interventions aimed at guaranteeing the liquidity of specific markets and encouraging access to credit by households and businesses, against a partial hedging of credit risk with Treasury funds.

To support liquidity in the money market, the Federal Reserve intervened both directly, through the purchase of commercial paper (Commercial Paper Funding Facility), and indirectly, by providing counterparties with loans guaranteed by securities purchased by them from money market mutual funds (Money Market Mutual Fund Liquidity Facility, MMLF).

In support of the liquidity of the local administrations, a specific instrument (Municipal Liquidity Facility) was created to directly finance, for the first time in history, the issuance of short-term debt of states, cities and counties, for a total amount of 500 billion dollars.

The Federal Reserve has also set up a series of facilities to facilitate medium-term credit to families and businesses more directly, for a total amount of 1,800 billion dollars. Of these, 100 billion are aimed at financing newly issued ABS having different forms of credit as underlying assets, including commercial, student and consumer credit (Term Asset-Backed Securities Loan Facility).

Larger companies can benefit from purchases by the Federal Reserve of syndicated issuance loans and corporate bonds on the primary and secondary markets for a total amount of up to $ 750 billion (Primary Market Corporate Credit Facility and Secondary Market Corporate Credit Facility).

The possibility of intervening also in favor of bonds and companies that, after the approval of these two measures, have undergone a lowering of their rating to the state of high yield represents an important element of novelty compared to the past. Small and medium-sized enterprises are allocated 950 billion (Main Street Lending Program), two thirds of which to purchase loans guaranteed by the Small Business Administration from banks and disbursed in connection with the Paycheck Protection Program established by the federal administration.

To meet the demand for US currency on the international market, the Federal Reserve has strengthened the existing dollar swap lines with the other main central banks, establishing new ones with those of a further nine countries; it also allowed all other monetary authorities to access very short-term dollar repurchase agreements against US government securities held by them and deposited with the Federal Reserve (Foreign and International Monetary Institutions Repo Facility).

The Bank of England.
The Bank of England decreased the reference rate to 0.10 percent (from 0.75), the lowest level ever reached; it has expanded the Asset Purchase Facility by £ 200 billion (to 645 billion), including bonds from non-financial companies with high credit ratings (investment grade). It also reintroduced two facilities to provide loans to financial institutions: the first for three-month loans guaranteed by illiquid assets (Contingent Term Repo Facility), the second for longer-term loans at rates equal to or close to that of policy whose quantities are proportional to the credit granted to companies (Term Funding Scheme with additional incentives for SMEs).
Finally, in support of the British government, the Bank of England has temporarily extended a short-term credit facility which can be used to normalize central government cash flows and ensure the functioning of the markets; any withdrawals must be repaid within the current year (Ways and Means Facility).
The Bank of Japan.
As part of its strategy to control the yield curve, the Japanese central bank has indicated its intention to purchase government securities in the amount that will be necessary, removing the previous limit of 80,000 billion yen. To ensure liquidity in the markets and facilitate access to credit, it increased the amount of commercial paper purchases and private bonds up to 20,000 billion yen, and doubled that of investment fund purchases. It also created a tool to support credit to households and businesses, granting banks one-year interest-free loans and remunerating the value of the assets offered by them as collateral (Special Funds-Supplying Operations).
Central banks of emerging countries .
Central banks have operated on key interest rates in emerging countries since mid-February. The liquidity of the local interbank markets was sustained with the increase in the frequency of open market operations, the extension of maturities and the expansion of the range of assets eligible as collateral. In addition, mandatory reserve ratios have been reduced in many jurisdictions.
To facilitate currency deposits, several central banks have entered into dollar swap agreements with the Federal Reserve. The extraordinary nature of the current crisis has led the monetary authorities of some emerging countries, which traditionally avoid the use of quantitative easing measures, to announce possible purchases of public debt securities, also reforming the laws that in some cases prohibited it, as in Brazil and the Czech Republic. The Chinese central bank has adopted a moderately expansive monetary policy stance, which has been reflected in the 30 basis point drop in the Medium Term Lending Facility rate and in the excess reserves held by the Central Bank ( for the first time since 2008). To alleviate tensions on the interbank market, liquidity was offered at various maturities, the rates on the seven-day reverse repo were lowered and the reserve requirement ratios were reduced by 100 basis points (by an additional 100 for some categories of intermediaries).
The Central Bank of China has also activated tools to support financing for businesses, in particular for those crucial for dealing with the health emergency and for smaller ones. On a prudential level, the swap program of the perpetual bonds issued by the banks was reopened, in order to strengthen their assets, to absorb the potential deterioration in the quality of the assets and to strengthen their ability to support the real economy. Mandatory provisions on non-performing loans have decreased and the possibility has been offered to extend the period beyond which assets should be classified as bad. Overall, these interventions have facilitated the disbursement of credit and allowed a greater issue of public and private bonds.

This is a machine translation from Italian language of a post published on Start Magazine at the URL on Mon, 15 Jun 2020 05:55:49 +0000.