As it becomes increasingly clear that the coronavirus pandemic is driving a sudden and sharp drop in economic activity, the Federal Reserve is unveiling a rapid string of emergency actions, reintroducing many of the strategies and programs it designed during the 2007-2008 financial crisis in a matter of days.

The interventions come as corporations' and intermediaries' efforts to secure cash resources appear to be rippling across a wide range of markets, and raising fears about limits to the capacity of banks' balance sheets.

The good news is that the Fed's maneuvers a decade ago during the most severe financial crisis in a century were largely successful in restoring market functioning and, ultimately, setting the groundwork for a return to economic growth.

The bad news is that the full scale and scope of the coronavirus shock remain unknown and markets are still showing signs of strain.

What follows is a review of some of the most important actions the Fed has taken over the past week.

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Back to the zero lower bound

The Fed slashed its benchmark rate to almost zero at an emergency Sunday meeting on March 15, reverting to the posture it adopted during the last financial crisis and that it maintained through the end of 2015. The move succeeded in returning the yield curve to a positive slope, but bank stocks were hammered as asset yields tend to move faster than funding costs.

At a news conference, Fed Chairman Jerome Powell continued to express U.S. policymakers' aversion to negative rates. But with yields so close to the zero bound, analysts at Keefe Bruyette and Woods tested banks against scenarios where rates on Treasurys would sink to the negative levels that prevail elsewhere in the world. In an environment of persistent negative rates, which could be accompanied by low credit costs, bank returns on tangible common equity might fall to a range of 7% to 10%, KBW estimated in a March 16 note.

Analysts also widely expect the rapidly weakening economy to drive up credit costs, in part due to dynamics under the recently adopted current expected credit loss accounting standard. Under CECL, loss reserves are heavily influenced by macro forecasts, and analysts at B. Riley FBR said in a March 16 note that their conversations with bankers indicate that increases in credit allowances in the range of 20% to 35% are likely for many banks they cover.

Another round of quantitative easing

Simultaneous with the rate cut, the Fed announced plans to add at least $500 billion of Treasurys and $200 billion of mortgage bonds to its holdings. The Treasury purchases build on a massive expansion of repurchase operations that the central bank announced a few days earlier as a part of an effort to address market disruptions that were evident in rising yields.

Dealer uptake in the repo operations has been relatively low so far. "This suggests that the Fed sees a liquidity issue, unseen to us, that they don't know how to properly address," KBW analysts wrote in a March 16 note.

The mortgage bond purchases followed a spike in home loan rates that led analysts at Compass Point to predict that the Fed would intervene to achieve "the economic stimulus benefits of a consumer refinancing wave."

Regulatory easing

The Fed also sought to encourage the flow of credit by telling banks they should use their capital and liquidity buffers to "lend to households and businesses who are affected by the coronavirus," and by eliminating reserve requirements.

Bank lobbyists had pushed for the change in reserve requirements, arguing that the resulting increase of about $140 billion in liquid assets that meet liquidity requirements would enable more lending.

The eight U.S.-based global systemically important banks offered a reciprocal gesture by announcing that they would suspend share buybacks through the first half of 2020, a move that has been followed by other banks.

Encouraging use of the discount window

The Fed cut the rate for collateralized loans it offers directly to banks through its discount window by 150 basis points to 0.25%, bringing it in line with the upper end of its target range for its main policy rate, which determines the price that banks offer for loans to each other. The Fed also extended the term of discount window loans to up to 90 days.

The Fed said it was seeking to "encourage more active use" of the discount window, and to make it more attractive "as a tool for banks in addressing potential funding pressures." Banks have been wary that borrowing from the Fed through the discount window is seen as a sign of weakness, and research has found that they were willing to pay vastly more for funding from alternative sources during the 2007-2008 financial crisis.

In a note on March 16, analysts at KBW said they believe "banks are still very well-capitalized to trade with each other through fed funds, but dropping the discount rate is likely meant to be a precautionary measure in case counterparty risk intensifies."

Also on March 16, the G-SIBs announced that they were tapping the discount window even though they "individually have substantial liquidity and multiple sources of funding." JPMorgan Chase & Co. had said in February that it planned to borrow at the discount window in an effort to remove the stigma.

Direct aid to commercial borrowers and more emergency lending

On March 17, the Fed also revived a program, originally launched in 2008 and subsequently retired, to support borrowing through commercial paper, which firms use for short-term financing. The central bank will purchase short-term debt directly from eligible companies under the program.

After a spike in rates and a decline in issuance, analysts at BofA Global Research had argued that the market would remain "frozen" without Fed action.

The same day, the Fed also rebooted a facility to make loans to its 24 dealer counterparties using a wide range of collateral. Priced at 0.25%, the same rate on discount window loans, the facility offers cheap financing to buy up assets where spreads have widened significantly as the coronavirus crisis has deepened, analysts said.

In a note on March 18, economists at Wells Fargo said that the commercial paper facility was one of the most heavily used programs during the last crisis, with volume peaking at $350 billion in early 2009. The economists added that the Fed could revive other emergency lending programs, concluding that while the central bank is running low on ammunition, it is not out yet.