Keywords
Federal Reserve, Covid-19, Corporate Bond Market, Monetary Policy, Credit Facilities, Secondary Market Corporate Credit Facility, Emergency Lending, Corporate Debt
Abstract
In response to the COVID-19 pandemic, the Federal Reserve (Fed) embarked on an unprecedented mission to stabilize the U.S. economy as businesses shut down. One emergency Fed facility, the Secondary Market Corporate Credit Facility (SMCCF), was used to purchase corporate bonds and corporate bond exchange-traded funds (ETFs) in the secondary market. This extraordinary measure, which injected liquidity into the corporate bond market, aimed to mitigate economic fallout for large companies. Purchasing corporate bonds marked a departure from previous Federal Reserve interventions, but the statutory authority was the same as had been used in past crises: Section 13(3) of the Federal Reserve Act (FRA). Additionally, the SMCCF was supported by the new Coronavirus Aid, Relief, and Economic Security Act (CARES).
This Note examines the legal bases for the SMCCF, highlighting where the Federal Reserve exceeded its statutory authority. Specifically, this Note examines statutory provisions that require security, a liquidity purpose, a penalty rate, and that the borrower be a U.S.-centric business. This Note proceeds to propose alternative facilities for future crises that solve the same problem, but that are within statutory bounds. This Note also reevaluates the Federal Reserve’s emergency lending framework, suggesting an amendment to modernize Section 13(3).
Recommended Citation
30 Fordham J. Corp. & Fin. L. 165 (2025).
Included in
Administrative Law Commons, Agency Commons, Banking and Finance Law Commons, Business Administration, Management, and Operations Commons, Business Intelligence Commons, Business Law, Public Responsibility, and Ethics Commons, Corporate Finance Commons, Other Law Commons
