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Issue #33 | April 14, 2020

Coronavirus, the Fed, and You

What the Fed is doing and why

To explain the Federal Reserve’s responses to the economic impacts of COVID-19, the Cleveland Fed published a one-page, plain-English infographic. Share it today. More COVID-related resources, including our president and CEO’s remarks during the April 10 City Club of Cleveland virtual forum, “Maintaining Economic Health During a Crisis,” are available here.

Parents and teachers, keep your children engaged with these free Fed resources

If you are using online platforms to teach children during these unprecedented times, add these interactive and educational resources to your plans for learners pre-K through high school. Browse activities, lesson plans, and online courses.

Individuals, businesses, and nonprofits: Your one-stop hub to all kinds of help

A new digital hub offers aggregated resources for those seeking help at the federal, state, and city levels on coronavirus-related topics including health and safety, housing, financial counseling, small business, regulatory guidance, and more. Explore the hub.

Fostering resilience in uncertain times: Financial resources for households and businesses

Resilience is the ability to withstand or rapidly recover from life-changing negative shocks and events. Here’s a list of resources designed to foster financial resilience during the COVID-19 pandemic—from protecting yourself from scams to student loan relief to disaster assistance loans for businesses and nonprofits.

Which workers face the highest unemployment risk because of COVID-19 measures?

Some 46 percent of US workers are at higher risk of layoff as businesses close at least temporarily during the pandemic, a St. Louis Fed blog post reveals. See which occupations are at high and low risk of unemployment.

The Federal Reserve announces COVID-19-related actions nearly every day

And now there’s a new, separate section highlighting the Federal Reserve Board’s pandemic-related guidance to financial institutions. Stay in the know about the Fed’s latest responses.

“Douse the raging fire”: Lessons for the COVID-19 relief bill from the 2008 rescue package

Neel Kashkari, president and CEO of the Minneapolis Fed, outlines practical steps officials can take for today’s pandemic crisis based on his experience with the Troubled Asset Relief Program (TARP). “Err on the side of helping as many workers and businesses as possible rather than on prudence,” says Kashkari, who oversaw TARP for Presidents George W. Bush and Barack Obama. Read his op-ed.

COVID-19 and households’ financial distress

In the first two parts of a series, three Federal Reserve Banks analyze the initial, expected, and potential impacts of the COVID-19 pandemic to American households. Parts one and two are available now and explore employment vulnerability and how quickly COVID-19 spreads in places with varying levels of financial distress. Forthcoming work will examine policy initiatives for supporting the most vulnerable among us.

Banks’ responses to COVID-19 may count for CRA

Concerned with helping low- and moderate-income (LMI) individuals and communities cope during this period of economic uncertainty, the Federal Reserve and other financial regulators last month announced that banking and lending activities responding to the needs of LMI individuals, small businesses, and small farms affected by COVID-19 are eligible to receive Community Reinvestment Act consideration. A Dallas Fed post gives examples of activities that qualify. A Fed program called Investment Connection links nonprofit responders and organizations supporting a resilient workforce to banks and other funders that may help fund those organizations’ projects and programs. May deadlines have been set for proposal submissions from community-based organizations in the Cleveland and Akron and Erie, Pennsylvania, areas. Details here.

“Increasingly dire”: Businesses answer 3 coronavirus-related questions

Two economists from the Federal Reserve Bank of Richmond examine the effects of the coronavirus outbreak on businesses in the region the Richmond Fed serves, including the areas surrounding Washington DC. Their analysis may provide information useful for those people in Ohio, Kentucky, Pennsylvania, and West Virginia given the shared borders and geographical proximity with the region the Cleveland Fed serves.

Recently, from the Cleveland Fed

  • Manufacturing under pressure

    The boom days of the past, the challenges of the present. The actions workers, companies, and communities are taking—and can take—to be resilient. Explore manufacturing in the heartland and why it matters in this three-part series.

  • Help on the way for neglected neighborhoods in Cuyahoga County, Ohio

    Low- to moderate-income neighborhoods in Cuyahoga County will soon benefit from a six-year, $30-million program to support housing markets, homeowners, and home renovations. Some of these neighborhoods, which are still struggling to recover from the Great Recession, haven’t seen any lending for home purchases or renovations in years. The Cuyahoga County Housing Program seeks to change that—and help these neighborhoods stabilize and thrive.

  • Sluggish or not? US wage growth since the Great Recession

    Using new data, Cleveland Fed researchers have revised their 2017 analysis of how much US wages have grown—and why—since late 2009. Wage growth is on the rise in average hourly earnings adjusted for inflation. See this 2020 Commentary to find out why the revised data may now tell a different story about post-recession wage growth.

  • Ever wonder why the Fed talks to the public so often?

    In 2012, the Fed adopted its 2 percent inflation target rate—a rate associated with stable prices—so that the Fed could help reduce economic uncertainty and better explain its decisions to the public. The Fed values transparency to enhance accountability and better communicate with the public about its policymaking. Learn about other changes in Fed communications in remarks from Cleveland Fed President and Chief Executive Officer Loretta Mester.

Question:

What is the Fed’s discount window, and how does it help during times of crisis?

Tom:

Let me start with what banks do. Banks take their customers’ deposits, and they use that money to make car loans, home loans, and business loans for other customers. When money has been lent out like this, banks can’t use it for paying their own bills—a utility bill, for example. If banks don’t have enough cash on hand to fund their operations, they typically borrow from another bank that does have the cash. It is not that banks don’t have the wealth to pay their bills. It’s that when their money is tied up in other ways and something happens—an investment opportunity arises or many borrowers take out loans, for example—banks will borrow from each other in the short term to ensure they close the day with positive balances.

Such borrowing between banks works well under normal economic circumstances. But what happens in a situation like the one we are in now—when people become concerned about the economic impact of a healthcare crisis, nonessential businesses have been ordered to close, and people are sheltering in place? A lot of businesses are going to be borrowing from banks for reasons and amounts that will be different from how they do business normally. Consumers who stay in are withdrawing cash to minimize their visits to the ATM. Banks know that there are loan payments that are probably going to be missed. They know that they’re going to have to change the terms of loans so that borrowers can repay their loans. The result? All of a sudden, banks aren’t lending to each other because they need their money to give to their customers and to create more of a cushion for possible losses on loans.

The current situation is a classic economic example of why the central bank and the discount window exist. Through the discount window, the Fed lends money to banks. As of March, the Fed is charging pretty close to nothing for banks to borrow, and it’s allowing them to borrow for longer periods of time. Note that only the safest and soundest banks may borrow in this way, and they have to pledge high-quality collateral such as loans and securities in order to borrow from the Fed. That way, in the event the borrowing bank doesn’t repay its loan, the Fed has collateral it can sell to recoup the money it lent.

When we’re in a situation where banks won’t or can’t lend to each other, the Fed provides the cash to ensure banks can continue to operate and—despite the economic downturn—continue to make loans to households and businesses that support our nation’s economy. Loans are an important contributor to economic growth. A company that wants to build a new factory often needs a loan to start the process. The loan allows the company to build the factory, hire workers, and start producing goods. Lending is critical, too, for people who want to buy cars, homes, and more, and for municipalities that need to continue to operate or want to expand the services they offer.

Tom Fitzpatrick

is vice president over credit risk management at the Cleveland Fed. His department oversees the discount window and banks’ accounts with the Cleveland Fed and works to support financial system stability while mitigating risk to the Federal Reserve Bank of Cleveland.

Graphic of the Month

Help wanted in the Heartland

The manufacturing industry faces many challenges, and one is finding and retaining its next generation of workers. See the three-part series and all 16 charts.

The manufacturing industry faces many challenges

By the Numbers

On the Calendar

  • April 30

    Investment Connection Orientation and CRA Training (webinar for Cleveland organizations)
    (Learn more about Investment Connection.)

  • May 27 –29

    2020 Reinventing Our Communities Conference: Equity InSight (Philadelphia, PA)

From around the Federal Reserve System

NY Fed offers resources to understand, combat economic inequality

Researchers at the New York Fed recently launched Economic Inequality and Equitable Growth, an initiative aimed at better understanding the varied factors that create inequality. A digital hub houses research, solutions, and policy ideas for reducing inequality and promoting equitable growth. “If we take better care of those people who are struggling,” notes the New York Fed’s David Erickson, “we’ll be taking better care of everyone.” Explore the Economic Inequality and Equitable Growth resource hub.


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