US Fed takes aggressive action as EU debates whether to use crisis fund
Countries battle against coronavirus fallout
The US Federal Reserve has redeployed a measure used in the last financial crisis to shore up the funding markets, which are in turmoil due to the coronavirus pandemic.
On Tuesday night (17 March) the Fed said it would allow approved dealers in government debt - including the largest banks - to borrow cash against some stocks, municipal debt, and higher-rated corporate bonds in a bid to boost liquidity, the Financial Times reports.
The Fed said in a statement its primary dealer lending facility would "allow primary dealers to support smooth market functioning and facilitate the availability of credit to businesses and households".
Starting on 20 March, the new facility will be available for at least six months. It will offer funding with maturities of up to 90 days while credit extended under the new facility for primary dealers would be collateralised by a "broad range" of investment grade debt, including commercial paper and municipal bonds, as well as equities, the Fed said. The interest rate charged will be discounted at 25 basis points.
Meanwhile, Eurozone member states are debating whether to utilise the €500bn European Stability Mechanism (ESM) set up in October 2012 in the fight against the fallout from coronavirus, the FT reports.
According to diplomats, member states are divided over how soon and under what conditions to use the rescue fund to prop up euro area economies in the face of the most serious downturn since the 2007-09 recession. Officials are exploring whether to offer credit to multiple member states as opposed to helping individual countries such as Greece, as it has in the past.
ESM managing director Klaus Regling said on Monday night that his institution was ready to examine ways it can help but Germany and the Netherlands are among the countries that have voiced concerns over actioning the ESM too soon, which could further shake investor confidence.
The ESM is legally separate to the EU, and its shareholders are the eurozone's 19 national governments.
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