Federal Reserve Bank of New York ("New York Fed") Executive Vice President Daleep Singh reviewed the actions taken by the Federal Reserve Board ("FRB") to provide emergency credit and liquidity in order to safeguard the economy during the COVID-19 pandemic. He concluded that the impact of the emergency lending facilities "has been large and sustained, while the usage has been generally low."
In a speech before a local non-profit organization dedicated to sustainable growth, Mr. Singh provided analysis on these FRB efforts. Mr. Singh observed: (i) that the size and scope of the facilities demonstrate the Fed's capacity "to blunt the initial economic effects of the pandemic shock;" (ii) that the efforts demonstrate an important and successful "partnership" with Treasury and a government-wide effort to cushion the U.S. economy from shocks; (iii) that the facilities were flexible, adaptable, accessible and inclusive in response to "feedback" and "changing conditions;" and (iv) that the facilities were sustainable and based on principles of "transparency, inclusive access, good governance, and accountability."
Mr. Singh noted that there are several ongoing challenges. These require (i) promotion of a more equitable recovery, (ii) ensuring that facilities are "used when needed in dysfunctional market conditions;" (iii) better understanding of vulnerabilities in the nonbanking sector, especially regarding businesses structured "with large amounts of embedded leverage," and business relying on short-term wholesale financing; and (iv) banking sector resilience in the midst of potentially nonperforming loans and bankruptcies.
Originally published July 08, 2020.
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