The Federal Reserve has taken several emergency steps in response to the coronavirus pandemic, including slashing interest rates to near-zero levels and using its emergency lending authorities to help prevent a freeze-up in credit conditions.

The Fed's actions have come at a much quicker pace than its response to the 2007-09 financial crisis, and they are taking the Fed into territory the central bank has traditionally steered clear of.

A few of the Fed's nine lending facilities are similar to ones the central bank used during the last crisis and are focused on assisting some critical corners of the financial system that came under stress in March. Other Fed facilities are much broader, with goals that include helping corporate bond markets stay liquid, helping state and local governments manage their cash flows and working with banks to provide loans to small and medium-sized businesses.

The Fed is launching its facilities through its emergency lending powers under section 13(3) of the Federal Reserve Act, a move that requires the approval of the Treasury Department. The department is also providing a credit backstop to guard against losses under the Fed's emergency lending facilities. Congress gave those efforts a major boost through the CARES Act, allocating $454 billion to Treasury to help enable the launch of additional Fed lending programs.

Below is an overview of the lending facilities the Fed has announced and some of their intended beneficiaries:

Short-term funding markets

One of the Fed's initial points of emphasis was to stabilize short-term funding markets such as the market for commercial paper, where many large financial and nonfinancial companies borrow money to pay for short-term liabilities such as payroll.

The interest rates that those companies needed to pay to borrow in the commercial paper market had jumped significantly in March. That was partly because prime money market funds, which are key lenders to commercial paper issuers, had refrained from doing so amid the market selloff in March. They were instead focused on building their own cash buffers given that investors were withdrawing money from those funds and placing it elsewhere.

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The Fed's announcement of a commercial paper facility, which promises to buy three-month commercial paper from eligible issuers, helped stabilize conditions in the market even without making any purchases. That effect has persisted even after the Commercial Paper Funding Facility became operational, analysts say, noting the facility has made few purchases so far, yet it has helped bring down borrowing costs.

In a related move, the Fed launched a Money Market Mutual Fund Liquidity Facility to help provide liquidity to eligible money market mutual funds. It also expanded the MMLF shortly thereafter by ensuring it also reaches mutual funds focused on short-term municipal debt, and it has expanded the CPFF to include municipal issuers as well.

States and local governments

The Fed has taken other steps since to help the municipal debt market, where issuers include states, local governments and other specialty issuers such as water districts. Those issuers' budgets are coming under major pressure as tax revenue falls just as the coronavirus prompts a jump in spending to help residents.

To help ease cash flow issues, the Fed announced a $500 billion Municipal Liquidity Facility on April 9 that will buy short-term notes from eligible states, cities, counties and other issuers. The facility became operational on May 26, and Illinois was the first to borrow from the MLF, selling $1.2 billion of one-year general obligation certificates to the facility.

Fed officials expanded access to the yet-to-be-launched facility on April 27, decreasing its minimum population thresholds for participation to 250,000 residents for cities and 500,000 residents for counties. They also allowed certain multi-state entities to participate and added a requirement stating issuers needed to be investment grade as of April 8 to participate.

The central bank expanded the facility again on June 3, allowing states to designate up to two cities and counties to borrow directly from the Fed if the state's cities and counties are not large enough to meet the population thresholds. It also opened up the MLF to other entities whose revenues largely come from government activities, such as public transit agencies, airports, toll facilities and utilities. Governors in each state will be able to designate two such issuers to borrow from the MLF.

Corporate bond markets

The Fed will soon begin purchasing certain corporate bonds through two separate facilities, joining the European Central Bank and Bank of Japan in buying corporate debt. Its announcement quickly helped alleviate conditions in corporate bond markets, where borrowing rates for investment-grade corporations had spiked as investors fled to safer assets.

Fed officials are limiting the purchases to issuers that were deemed investment grade before the coronavirus hit, allowing some "fallen angels" that were downgraded recently to benefit.

The Fed will buy up the bonds through two separate facilities: a Primary Market Corporate Credit Facility where the Fed may buy bonds directly from eligible companies and a Secondary Market Corporate Credit Facility that will buy corporate bonds from the secondary market.

In another major step for the Fed, the SMCCF has started to buy U.S.-listed ETFs whose goal is to give investors a "broad exposure to the market" for U.S. investment-grade corporate bonds, as well as ETFs focused on the high-yield corporate bond market. A BlackRock Inc. subsidiary is conducting the initial purchases of bonds and ETFs under the facility.

Small and medium-sized businesses

The Fed is also looking to help small and medium-sized businesses that have experienced sharp drops in revenue amid widespread closures.

It is doing so partly by launching a liquidity facility for lenders participating in the Small Business Administration's Paycheck Protection Program. The Fed's PPP Liquidity Facility does not lend to small businesses directly; it instead offers credit to PPP lenders, which need to post the PPP loans they originate or purchase as collateral.

The other notable effort from the Fed is its Main Street Lending Program, which will work with banks to offer up to $600 billion in loans for businesses with up to 15,000 employees or up to $5 billion in annual revenues.

Unlike the SBA's PPP loans, the Main Street loans will not be forgivable. The Fed is also planning to buy most of each loan and requiring that banks retain the rest.

After hearing that there is somewhat limited demand so far for the Main Street loans, the central bank changed the terms to make them more attractive. It halved the minimum amount on certain loans to $250,000, extended the term of the loans to five years instead of four and allowed borrowers to delay principal payments for two years instead of one.

Asset-backed securities market

The Fed has also said it will relaunch its Term Asset-Backed Securities Loan Facility to help avoid credit disruptions for consumers and businesses and keep their borrowing costs low.

The TALF will do so by lending to holders of the top-rated portions of certain asset-backed securities, helping enable the issuance of new ABS backed by often-used consumer and business loans, such as auto loans, student loans and equipment loans. The Fed has expanded the TALF-eligible collateral to include AAA-rated tranches of certain collateralized loan obligations, or CLOs.

The facility will make up to $100 billion of loans, the central bank says.

Primary dealers

The central bank's primary dealers — institutions that the Fed transacts with through its open market operations — are also able to borrow from the Fed under the Primary Dealer Credit Facility.

The PDCF is helping boost liquidity among primary dealers by offering them secured loans of up to 90 days, which are backed by a wide range of collateral that includes bonds, asset-backed securities and some equity securities. The term of the loans is significantly longer than the overnight loans the Fed offered to primary dealers between 2008 and 2010.

The facility is similar to a discount window that is available only to depository institutions, although the discount window does not allow equity securities as eligible collateral.