Government Stimulus and Relief Efforts to Fight the COVID-19 Crisis

Coronavirus, also called COVID-19, has caused a crisis for the global economy and markets. With an escalating number of confirmed cases globally, the World Health Organization has declared the virus to be a global pandemic, meaning that it will have a sustained global impact.  Many countries’ economies already were slowing before the pandemic, and now COVID-19 threatens to push them into a steep recession. It already pushed the U.S. stock market, the world’s largest, into bear market territory in March, though the stock market since then has recouped part of its losses.

In response to this crisis, governments and central banks worldwide have enacted sweeping and sizable fiscal and monetary stimulus measures to counteract the disruption caused by coronavirus. Note that all amounts have been converted to U.S. Dollars, and therefore may have changed slightly due to changing exchange rates. Here is a list of what each country or region is doing:

The U.S., the world’s largest economy, has taken a broad range of steps to combat the economic disruption caused by COVID-19. Congress passed trillions of dollars in fiscal programs, while the U.S. central bank, the Federal Reserve, added trillions of dollars in monetary stimulus.

Monetary Policy

The Fed’s stimulus measures fall into three basic categories, interest rate cuts, loans and asset purchases, and regulation changes. The Fed cut its benchmark interest rate, the fed funds rate, twice during March 2020, once by 0.50% and a second time by 1.00%  This lowered the fed funds rate, which is expressed as a range, from 1.50%-1.75% to 0.00%-0.25%. This is notable because the Fed hadn’t moved interest rates in increments greater than 0.25% since it cut them during the Great Recession. On March 15, 2020, the Fed also cut its “discount rate,” another key interest rate, by 1.5%, down to 0.25%.

Loans and asset purchase intervention was more extensive, covering a wide array of programs. The simplest asset purchasing program is the quantitative easing (QE) program, in which the Fed directly buys assets like U.S. Treasurys and mortgage-backed securities (MBS). The Fed, which originally created the program during the Great Recession, restarted it on March 15, 2020. The scale of the program is currently open-ended, with the Fed saying it will buy “in the amounts needed to support the smooth functioning of markets.”

The Fed enormously expanded its repo operations on March 12, 2020, by $1.5 trillion dollars, then adding another $500 billion on March 16, to ensure there was enough liquidity in the money markets.  Repo operations effectively allow the Federal Reserve loan money to banks, by purchasing treasurys from them, and selling them back to the banks at a later date.

Besides direct asset purchases, the Fed set up several programs that opened up new, specific lines of credit to financial institutions. On March 20, 2020, it relaunched a Great Recession-era program, the Primary Dealer Credit Facility (PDCF), which will give loans to primary dealers backed by muni bonds or corporate bonds as collateral. There is no set limit to the amount of credit it will issue, but it will only run for 6 months unless it is extended. 

To add more liquidity to money markets, the Fed launched the Money Market Mutual Fund Liquidity Facility (MMLF) on March 18, 2020. This program lends money to financial institutions so they can buy money market mutual funds. The MMLF is similar to the AMLF program launched in 2008 after the collapse of Lehman Brothers caused a major money market fund to fail.. The program does not have a specific lending limit, but is currently scheduled to end on Sept. 30, 2020. The treasury department gave the MMLF $10 billion of debt credit protection for the program. On June 5, 2020, the Federal Reserve said that participation in the MMLF wouldn’t affect the liquidity coverage ratio of participating banks.

To help small businesses, in concert with the CARES Act, the Fed launched the Paycheck Protection Program Lending Facility (PPPLF) on April 9, 2020. This program lends money to banks so that they can, in turn, lend money to small businesses through the Paycheck Protection Program. On April 30, 2020, the program was expanded the types of lenders who can participate in the program. There is no current limit to the amount of credit that can be extended through the program, but it will stop extending credit to the program on Sept. 30, 2020. On June 5, 2020, the Federal Reserve said that participation in the PPPLF wouldn’t affect the liquidity coverage ratio of participating banks.

The Fed created several new programs that establish legal entities known as, special purpose vehicles, to make specific loans or purchase assets indirectly. On March 17, 2020, the Fed established the Commercial Paper Funding Facility (CPFF), which purchases short-term debt known as commercial paper to ensure those markets stay liquid. On March 23, 2020, the Fed broadened the variety of commercial paper it would lower the pricing of the debt it buys. This is actually a relaunch of a program begun during the Great Recession, when many businesses were hurt as liquidity in the commercial paper markets dried up. While it has no set limit on the amount it will purchase, the CPFF will stop purchasing debt on March 17, 2021, and the SPV will continue to be funded until its assets mature. The Treasury Department made a $10 billion equity investment in the CPFF from its Exchange Stabilization fund.

On March 23, 2020, the Fed created the Primary Market Corporate Credit Facility (PMCCF) to buy corporate bonds to ensure corporations can get credit. At the same time, it created the related Secondary Market Corporate Credit Facility (SMCCF), which buys up corporate bonds and bond ETFs on the secondary market. The combined purchase limit for the programs is $750 billion, up from an initially $200 billion. The Treasury Department contributed a total of $75 billion in initial capital to these two programs from the ESF, $50 billion for the PMCCF, and $25 billion for the SMCCF. The premise is that this program makes banks more willing to lend to corporations, because they know that they can sell the loans to the Fed. Both programs will stop purchasing bonds on Sept. 30, 2020, and they will continue to be funded until their holdings are sold or mature.    

Also on March 23, the Fed resurrected an old program from the Great Recession, the Term Asset-Back Securities Loan Facility (TALF). It will make up to $100 in loans to companies and takes asset-backed securities (ABS) as collateral. This includes a variety of securities, such as those based on auto loans, commercial mortgages, or student loans. The Federal Reserve expanded the types of ABS that could be purchased on April 9, 2020. The Treasury Department’s ESF will make a $10 billion initial equity investment in the SPV. It will stop extending credit on Sept. 30, 2020. 

On April 9, 2020, the Fed announced the Main Street Lending Program, which sets up an SPV that will purchase up to $600 billion in small and medium-sized business loans. The Fed will only purchase a 95% stake of each loan, with the bank keeping 5%. To qualify, businesses need to have 10,000 or fewer employees or have $2.5 billion or less in 2019 revenue. It will purchase stakes in both new loans and loan extensions, and under the CARES Act, the Treasury Department will make a $75 billion equity investment in the SPV. On April 30, 2020, the Main Street Lending Program was expanded in several ways. The number of maximum employees was raised to 15,000 or fewer, and the annual revenue was $5 billion or less. The minimum loan size was lowered to $500,000, and a third type of loan was added allowing the Fed to purchase 85% of loans to more heavily leveraged companies. It will continue to purchase stakes in loans until Sept. 30, 2020, and it will continue to be funded until its assets mature or are sold. 

Also on April 9, 2020, the Fed announced the Municipal Liquidity Facility (MLF), which will purchase up to $500 billion of short term notes issued by U.S. States (and D.C.), counties with at least 2 million people and cities with at least 1 million.  On April 27th, the population required to receive aid was lowered to 500,000 people for counties, and 250,000 people for cities. The April 27 change also changed raised the maturity limit on eligible securities from 24 months to 36, and allowed Multi-State Entities to sell bonds to the facility. On June 3, 2020, the facility was broadened further to allow smaller states to designate their most populous city and/or county to eligible for the facility even if they don’t meet the population requirements. In addition each state can designate two “revenue bond issuers”, such as airports or utilities, that can also sell bonds to the facility. Under the CAREs Act, the Treasury Department will make an initial equity investment of $35 billion to the SPV. It will stop purchasing notes on Dec. 31, 2020, and the Fed will continue to fund it until its assets mature or are sold.

Additionally, the Fed made regulation changes to further add liquidity to the markets. For instance, the Federal Reserve made a number of technical changes to hold on to less capital so they can lend more. It temporarily removed the asset restrictions it placed on Wells Fargo after their fake account scandal, so that Wells Fargo could lend more now. 

Fiscal Policy

Throughout March and April 2020, the U.S. government passed three main relief packages, and one supplemental one, totalling nearly $2.8 trillion.

The first relief package, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, since nicknamed Phase One, was signed into law on March 6, 2020. It allocated $8.3 billion to do the following:

• Fund research for a vaccine
• Give money to state and local governments to fight the spread of the virus
• Allocate money to help with efforts to stop the virus’s spread overseas

• Providing money for families who rely on free school lunches in light of widespread school closures.
• Mandate companies with fewer than 500 employees provide paid sick leave for these suffering from COVID-19, as well as providing a tax credit to help employers cover those costs.
• Nearly $1 billion in additional unemployment insurance money for states, as well as loans to states to fund unemployment insurance.
• Funding and cost waivers to make COVID-19 testing free for all

The third, and by far the largest, relief package was signed into law on March 27, 2020. By nominal dollar amount, it is the largest single relief package in U.S. history. This law, called the Coronavirus Aid, Relief, and Economic Security Act and nicknamed the CARES Act or Phase 3, appropriated $2.3 trillion for many different efforts:

• One-time, direct cash payment of $1,200 a person, plus $500 per child
• Expansion of unemployment benefits to include people furloughed, gig workers, and freelancers until Dec. 31, 2020
• Additional $600 of unemployment per week until July 31, 2020
• Waived early withdrawal penalties for 401(k)’s for amounts of up to $100,000 until Dec. 31, 2020
• Mortgage forbearance for federally-backed mortgages for 180 days
• $500 billion in government lending to companies affected by the pandemic
• $367 billion in loans and grants to small businesses through the Paycheck Protection Program (PPP) and expanded Economic Injury Disaster Loan (EIDL) program
• More than $130 billion for hospitals and health care provides
• $150 billion in grants to state and local governments
• Almost $60 billion for schools and universities 

A supplementary stimulus package, nicknamed Phase 3.5, was signed into law on April 24, 2020. It appropriates $484 billion, mostly to replenish the PPP and the EIDL, and contains additional funding for hospitals, and COVID-19 testing.

Another supplementary measure, overhauling the Paycheck Protection Program, was signed into law on June 5, 2020. It makes the following changes to the program:

• It allows business 24 weeks to spend the money, up from 8
• It lowers the requirement to spend 75% of PPP funds on payroll to get loan forgiveness to 60%
• It gives businesses until the end of the year to restore their payrolls to precrisis levels
• It extends the time borrowers have to pay back unforgiven parts of the loan

The Trump administration enacted a number of other measures to provide fiscal stimulus in Spring 2020. On March 13, 2020, Trump announced a state of emergency, which freed up $50 billion in emergency aid for states, cities, and territories.

On March 17, 2020, Treasury Secretary Steven Mnuchin extended the deadline for paying both individual and business taxes to July 15, an effort which he claimed would free up $300 billion in liquidity. On March 20, 2020, Mnuchin also extended the date to file taxes to July 15. 

The Secretary of Education, Betsy DeVos, suspended student loan payments and interest accrual for federally-held student debt, also on March 20. This suspension of payments and interest was extended through Sept. 30, 2020 as part of the CARES Act. 

On April 19, 2020, the Trump administration said businesses can delay payment of tariffs for 90 days if they have suspended operations during March and April and if they “demonstrate significant financial hardship.”

The COVID-19 pandemic is believed to have started in China, as it had the earliest, large outbreak in Wuhan. As a result, China responded with stimulus and relief efforts earlier than most countries. This means China may be a useful leading indicator of both the economic downturn and its associated lockdown will shake out, and the speed of the recovery.

Monetary Policy

China’s central bank, the People’s Bank of China (PBOC), has implemented several policy measures aimed at providing monetary stimulus. It was the first major central bank to act during the crisis.

On February 16, 2020, the PBOC cut the one-year medium-term lending facility rate (the rate at which it lends to banks) by 0.10%. It followed this up by cutting its one-year and five-year prime rates (the rate at which banks lend to the most credit-worthy corporations) by 0.10% and 0.05%, respectively. On March 29, the PBOC cut interest rates on its seven-day repo agreements by 0.2% to 2.2%. It lowered the one- and five-year prime rates by 0.2% and 0.1% to 3.85% and 4.65%, respectively, April 19. It lowered the one-year interest rate on its targeted medium-term lending facility (a loan program meant to shore up struggling parts of the economy) April 23. On May 10, the PBOC announced that it had cut rates on its Standing Lending Facility.

China first expanded repo operations on February 3, 2020. Through repo operations and its medium-term lending facility it’s injected approximately $466 billion of liquidity into the economy as of April 30, 2020 according to the IMF.

On March 13, the PBOC lowered bank reserve requirements, freeing up about $79 billion to be lent out. The PBOC cut the reserve ratio for small and medium-sized banks April 3. It also cut the interest rate it pays on excess reserves.

Fiscal Policy

Data has been somewhat scarce when it comes to the exact nature of China’s official government stimulus and relief response.

As of mid-March 2020, many local governments in China have been giving out prepaid spending vouchers to boost consumer spending, but the amounts are reportedly relatively small. The Chinese government has asked banks to extend the terms of business loans and commercial landlords to reduce rents. Regional and local governments have also been increasing subsidies for certain auto purchases, and raising the cap on the number of cars that can be owned in each locality. The government asked lenders to give smaller companies debt deferments from January 25 to June 30, 2020. Banks have been asked to give forbearance on mortgage and other personal loans.

As of April 30, 2020, according to the IMF, an estimated $367 billion in fiscal measures or financing have been announced including total funding to fight the virus has amounted to $367 billion and includes:

• Increase epidemic prevention spending
• Production of medical equipment
• Moving up unemployment payments
• Social security tax relief 

On May 22, 2020, the government of China unveiled its first major stimulus package. The $506 billion package was accompanied by the issuing of special treasury bonds by Beijing for the first time since 2007, along with increasing the limit on special bonds that can be issued by local governments. Unlike many countries, which have rolled out substantially bigger stimulus packages this year than during the Great Recession, China’s is smaller than the $572 billion package it passed then. Among other things, the package contains funding for local governments to stop the virus spread and business tax cuts.

Hong Kong was already facing tough economic headwinds before the 2020 pandemic because of unrelated public protests throughout 2019. Hong Kong rolled out stimulus fairly early, including a universal cash payments, similar to the one later included in the U.S. CARES Act.

Monetary Policy

The Hong Kong Monetary Authority (HKMA), while not technically a central bank, sets monetary policy for Hong Kong. The HKMA links the value of the Hong Kong Dollar to the fixed exchange rate against the U.S. Dollar within a certain range. This means that the HKMA follows interest rate changes by the Federal Reserve to maintain the currency peg.

On March 4 and March 16, 2020, the HKMA announced reductions in the benchmark interest rate by 0.50% to 1.5% and 0.64% to 0.86% following the Fed’s interest rate reductions.  Also on March 16, the Federal reserve lowered capital requirements to allow banks to lend more.

Fiscal Policy

Hong Kong has released three fiscal stimulus and relief packages. The first, on February 21, 2020, establishing the $3.9 billion Anti-epidemic Fund, it included the following efforts:

• $1.6 billion for subsidies to the retail, restaurant, and transportation sectors
• $600 million for increased hospital funding
• $190 million for increased mask production
• $130 million to purchase masks internationally

Hong Kong announced a $15.5 fiscal stimulus package as part of its 2020-2021 budget on February 26, 2020. It includes:

• A $1,200 cash subsidy to all adult permanent residents. (This was extended to low-income and non-permanent residents on March 3, 2020.)
• Paying one month’s rent for people living in public housing
• Cutting payroll, income, property, and business taxes
• Low-interest, government-guaranteed loans for businesses
• Extra month’s worth of payments to people collecting old-age or disability benefits

On April 8, a $17.7 billion stimulus and relief package was announced, including:

• $10 billion to provide wage subsidies to employers of 50% of employee’s monthly wages for 6 months, capped at $1,161.
• $2.7 billion to support particularly hard hit sectors of the economy
• Giving a six-month, 75% rent reduction to people and companies renting from the government
• Deferring payroll and business profit taxes for three months

Japan came into the pandemic with a somewhat depressed economy, already struggling with deflation and low growth, so the pandemic has own compounded its problems.

Monetary Policy

On the monetary side of things, the Bank of Japan, Japan’s central bank, launched a major raft of stimulus on March 16, 2020. It substantially increased QE, doubling the rate at which it was purchasing ETFs from $56 billion a year to $112 billion. It also increased purchases of corporate bonds and commercial paper. On the same day, the Bank of Japan announced a new program of zero-interest loans to increase lending to businesses hurt by the virus.

Fiscal Policy

On the fiscal end, Japan passed four spending bills. The first, a package of small business loans worth $4.6 billion, passed on February. On March 11, 2020, the second spending bill of $15 billion passed, increasing funding for business loans. It also included $4 billion for programs to boost mask production and to prevent the virus from spreading in nursing homes.

The third stimulus package of $989 billion passed on April 7, 2020. Its most prominent provision was a $930 payment that any resident of Japan can apply for. Small and medium-sized businesses, as well as freelancers, can apply for payments of up to $18,534 if their incomes have been significantly affected by the virus. The package also included $241 billion in tax deferments for businesses and increased funding for medical supplies.

The fourth stimulus package of $1.1 trillion was announced on Wednesday May 27. it includes, among other things:

• Rent subsidies for individuals as well as small and medium sized businesses
• A one-time $1,860 payment to each front line medical worker
• Increase subsidies to businesses hit by the pandemic
• The creation of a $93 billion emergency fund for a possible second wave of infections

European Central Bank Monetary Policy

Unlike the Federal Reserve, the European Central Bank hasn’t had much room to lower interest rates. Its deposit interest rate is negative and refinancing interest rate is at 0. This means it has had to rely on other monetary policy tools to respond to the current pandemic.

While it’s benchmark interest rates have remained the same, on March 12, 2020, it did lower the interest rate on and eased lending requirements for its targeted longer term refinancing operations (TLTRO III), a program of long-term loans to banks to keep liquidity steady. It followed this up with a second TLTRO III interest rate cut on April 30, 202, the TLTRO III operations, sending it into the negatives. This is not one of its benchmark interest rates. To further boost credit, on April 30, 2020, it announced a new series of longer-term refinancing operations called the “pandemic emergency longer-term refinancing operations” (PELTROs) to provide additional lending liquidity.

Throughout the spring of 2020, the ECB activated or created currency swaps with the central banks of Denmark, Croatia, and Bulgaria. All of these are European countries that do not use the Euro, these swaps help ensure there are enough Euros available in those countries for Euro-denominated financing.  

The ECB has substantially increased its bond-buying program. On March 12, 2020, it announced an additional $128 billion in bond purchases over the course of 2020. Then, on March 19, 2020, it announced an asset-purchase program called the Pandemic Emergency Purchase Program (PEPP) which will purchase roughly $800 billion in bonds and commercial paper throughout 2020. One notable feature is that Greek government bonds will be eligible for purchase as part of this program. Those are normally excluded from bond-buying due to the country’s credit rating. On June 4, 2020, the ECB announced that PEPP would be expanded by $680 billion to a total of $1.5 trillion. The length of the program was also extend at least until the end of June 2021, and the ECB said that it “l will conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over.”

The ECB also instituted regulations changes to increase liquidity. On March 12, 2020, it temporarily lowered the level of capital banks need to hold to allow them to increase lending. On April 7, 2020, it broadened what could be used as collateral for ECB refinancing operations. It claims these measures are temporary and will be “re-assessed before the end of 2020.” On April 22, it allowed assets that have had their credit rating downgraded after April 7 to be used as collateral for ECB refinancing operations until September 2021.

EU Fiscal Policy

On May 27, 2020, the European Union unveiled its first fiscal stimulus proposal, funded by bonds issued by the EU itself, rather than by individual governments of its member states. This $860 billion package is called “Next Generation EU.” It will give $550 billion in grants to member states, and $275 billion in loans. The package must be approved by member states before it is put into effect. 

As a Eurozone country, Germany’s monetary policy is conducted by the European Central Bank. The only Germany-specific relief items passed by the government are related to fiscal policy. To that end, Germany rolled out a broad series of aggressive fiscal stimulus and relief measures. Its efforts are, by far, the largest of any country in Europe in overall size and as a percent of the country’s overall GDP.

Far and away its largest relief measure was its Economic Stabilization Fund, announced on March 23, 2020. This $650 billion fund offers $432 billion in loan guarantees, $108 billion to buy equity stakes in struggling companies, and $108 billion to the German Development Bank to refinance loans to businesses. This was accompanied by an expansion in the types of loans the development bank can offer.

Also on March 23, Germany passed a $168 billion supplementary budget, suspending existing government debt rules, to help fund additional COVID-19 related spending including the following:

• A $54 billion emergency liquidity program for small businesses, self-employed people, freelancers, and farmers. Those categories of people and companies can apply to receive up to $16,200 to cover operating costs.
• Increased spending on PPE, vaccine research, and other public health measures
• Expanded child care benefits for low-income parents and easier access to welfare for the self-employed.
• Expanded funding of worksharing payments (Worksharing is where companies lower employees hours as an alternative to layoffs. Employees are then partially, or fully, compensated by the government)

On March 19, 2020, the Germany Ministry of Finance announced that taxpayers who can prove they are directly and significantly affected by the COVID-19 pandemic can apply to defer or lower their taxes that they would owe through December 31, 2020. In addition on May 6, 2020, the value added tax for restaurants and catering services has been reduced from 19% to 7%.

Indian’s monetary policy has been less constrained than its fiscal policy, because it is not as tied to India’s standing with foreign credit agencies.

Monetary Policy

On March 27, 2020, India’s central bank, the Reserve Bank of India (RBI) lowered its repo rate, the bank’s benchmark interest rate, by 0.75% to 4.4%, and also lowered the reverse repo rate by 0.9% to 4%. It lowered reverse repo rates on April 17 further, by 0.25% to 3.75%.

The bank injected $49 billion into the financial system on March 27 by a combination of loosening capital restrictions and reserve ratios, as well as launching a “targeted long term repo operation,” (TLTRO). The TLTRO allows repurchase agreements on investment grade bonds, commercial paper, and another debt instrument called non-convertible debentures (NCDs). 

The RBI increased its lending facility for state governments on April 1, 2020, and it raised the ability of state governments to overdraft on April 7.  Another $6.6 billion TLTRO, targeted at smaller financial institutions, TLTRO 2.0, was launched on April 17. It followed this up on April 27, with the creation of the Special Liquidity Facility for Mutual Funds (SLF-MF), which will lend up to $6.6 billion to purchase mutual funds.

The RBI allowed all banks to permit three-month deferments of payment for loans on March 27, 2020. On April 17, the bank allowed a moratorium from March 1 to May 31 on the classification of assets as non-performing. Normally loans are classified as non-performing after 90-days of being overdue on payments.

Fiscal Policy

There is some question of how large of a fiscal stimulus and relief package India can offer, because of concern that more extensive deficit spending may provoke credit agencies into downgrading India’s sovereign credit rating. At the end of April, 2020, credit rating agency, Fitch, said that India’s credit rating could deteriorate if its fiscal outlook gets worse. Senior officials have said this may limit the total government spending on stimulus to $60 billion. 

On March 26, 2020, Indian announced a $22.5 billion spending plan to help the nation’s poor better cope with the pandemic, included in it are:

• Free grain and other staples for poor families for three months
• Expanded insurance for health care workers
• One-time cash payments of $13.31 to 30 million senior citizens
• Pushing up scheduled cash payments to 87 million farmers as part of an existing program.
• Free cooking gas to women in rural areas for three months
• Establishing a fund to help construction workers affected by the quarantine

On May 13, Prime Minister Narendra Modi announced a new stimulus package called the “Self-Reliant India,” program. While he claimed it would be $266 billion, but that total includes previously spent money and monetary stimulus. The actual fiscal spending may be as small as $27 billion. The package will be released in 5 separate parts, some of which include general reform measures and law changes not related to the pandemic.

The first part is focused on small and medium sized businesses. It includes among other things, direct extensions of loans to businesses, full and partial loan guarantees to different types of businesses, extending various tax filing deadlines, and a reduction in payroll taxes. 

The second deals with help to the poor, especially migrant and farm workers. It includes extensions of more credit to farmers, programs to provide food for migrant workers and allow them to more easily access welfare benefits, and reforms to make minimum wage laws apply to more workers, more uniformly.

The third relates to agriculture in general and includes funding for farm supply chain and infrastructure improvements and reform of agricultural regulation to make it easier for farmers to stockpile and sell crops.

The fourth part is about modernizing India’s economy and includes loosening regulations in the coal and mineral mining sector to increase private-sector involvement, changing military procurement regulations, easing airline and airport regulations, and the privatization of power utilities.

The fifth part focuses mainly on reforming business regulation, increasing state government borrowing limits, increasing funding to a work program for rural workers.

The United Kingdom differs from the other large European economies in two major ways. The first is that it has its own central bank, unlike Germany, France, and Italy. Those countries’ monetary policy is run by the European Central Bank. The other is that the U.K. is undergoing a possibly massive change to its laws and trading relations due to Brexit, and was in the process of renegotiating its trade relationship with the EU when the pandemic started.

Monetary Policy

The Bank of England has taken a number of steps to try to mitigate the pandemic and its resulting economic crisis, using all of its tools, and bringing rates down to record lows.

The Bank of England (BoE) cut its benchmark interest rate twice; March 11, 2020, it went from 0.75% to 0.25%, and March 19, 2020, it went from 0.25% to 0.1%. It is currently at an all-time low. 

On March 24, the BoE activated its Contingent Term Repo Facility (CTFR), an additional three-month repo operation on top of existing ones. A one-month facility was added on March 30. Both the one-month and three-month facilities have been extended twice and are now set to end on May 29 and June 1, respectively.

On March 19, 2020, the BoE announced it would restart QE with $246 billion in government and non-financial, investment-grade corporate bonds.

The BOE has launched a number of additional lending and asset-purchasing programs to extend credit during the crisis. On March 11, 2020, the BoE announced the Term Funding Scheme with additional incentives for small and medium-sized enterprises (TFSME). This scheme offers loans from the BOE to banks using the banks’ loans to businesses as collateral. Banks will receive more money if they lend to small- and medium-sized businesses. The TFSME began operating on April 15, 2020. 

On March 17, the BoE launched the Covid Corporate Financing Facility (CCFF), which will purchase commercial paper for at least 12 months. There is no stated limit to the purchases.

As for regulatory changes, on March 11, 2020, the BoE allowed banks to use a reserve they call a “counter-cyclical capital buffer,” which is money kept in reserve to increase banks’ resistance to global financial shocks, allowing nearly $390 billion in new loans. It also cancelled the 2020 bank stress test.

On April 9, 2020, the BoE announced it would lend directly to the government if bond markets are insufficient to meet fiscal requirements during the COVID-19 crisis.

Fiscal Policy

The U.K. fiscal policy has come in four packages. The first, announced on March 11, 2020, allocated nearly $37 billion in fiscal stimulus and relief in the U.K. budget. Among other things, it includes:

• A tax cut for retailers
• Cash grants to small businesses
• A mandate to provide sick pay for people who need to self-isolate, and a subsidy to cover the costs of sick pay for small businesses
• Expanded access to government benefits for the self-employed and unemployed

The second wave, unveiled on March 17, 2020, included $379 billion in business loans and loan guarantees. These loan schemes have been divided into the Coronavirus Business Interruption Loan Scheme, for small and medium-sized businesses, and the Coronavirus Large business Interruption Loans Scheme, for larger businesses. This package also contained $23 billion in business tax cuts and grant funding to businesses hit worst by the virus, such as retail and hotel businesses.

The third package, announced on March 20, 2020, included:

• A program to issue grants to companies covering up to 80% of worker’s salaries if companies keep them on payrolls rather than lay them off. It will be up to $3,046 a month per person. The program is backdated to March 1, and will last three months unless it is extended. It is expected to cost $95.1 billion.
• $8.5 billion to increase the tax credits for the poor and unemployed, giving each person roughly $1,200 more a year.
• $1.2 billion in additional funds to increase the low-income housing benefit.
• Deferring the next quarter of Value Added tax, estimated to be about $36.6 billion.

The fourth package, announced on March 26, 2020, gave cash grants of up to $3,080 for self employed people making up to $61,600 a year. The payments will continue monthly for at least three months.

The U.K. also passed a handful of smaller measures throughout the spring of 2020. On March 23, it announced a measure ensuring that no commercial tenant can be evicted if they miss a payment through June 30, 2020. On April 3, the Transportation Secretary, Grant Shapps, announced that $0.2 billion dollars of additional funding would be provided to keep bus service running. On May 2, Communities Secretary, Robert Jenrick announced that $80 million will be given to support charities for survivors of domestic abuse, sexual violence, vulnerable children and their families, and victims of modern slavery.

As a Eurozone country, France’s monetary policy is conducted by the European Central Bank. The only France-specific relief items passed by the government are related to fiscal policy. France’s biggest COVID-19 relief measure is a package of loan guarantees to help businesses survive the crisis. The current package includes $323 billion in loan guarantees. 

On April 17, 2020, all business tax filings for May were postponed until June 30, and businesses may request deferment of payment for May taxes. Large companies will only be granted deferments if they issue no dividends or buybacks until the end of 2020.  The tax filing calendar for individuals has been pushed back by 10 days.

On March 17, French Finance Minister, Bruno Le Maire announced a $49 billion aid package, that was expanded to $119 billion on April 15, the aid package includes the following:

• $8.7 billion in increased spending on health supplies and bolstering the health care system.
• $26 billion in increased funding for work-sharing wage supports
• $7.6 billion in direct payments for the self employed and very small businesses
• Postponement of rent and utilities for small and medium enterprises
• Extending unemployment benefits
• Funds for bailout loans to businesses 

As a Eurozone country, Italy’s monetary policy is conducted by the European Central Bank. The only Italy-specific relief items passed by the government are related to fiscal policy. Italy has launched two separate stimulus packages.

The first stimulus and relief package was announced on March 16, 2020, the Italian government announced its first stimulus package, the “Cura Italia” (Care Italy) law. It contains roughly $27 billion focused on four main “pillars.”

The first is $3.5 billion to strengthen the Italian healthcare system and buy personal protective equipment.

The second is $11.2 billion to help protect workers. It includes strengthening unemployment benefits, a $650 allowance to the self employed and seasonal workers for March, extended parental leave or $650 to pay for babysitting, as well as extending paid leave for those taking care of disabled relatives. Also included in this pillar are funds for hiring 1,000 additional doctors, and for paying police overtime. Families can apply for a suspension of mortgage payments, if the pandemic threatens their livelihood.

The third plan involves $5.5 billion to increase business and household liquidity. This includes, among other things:

• A moratorium on loan repayments for small- and medium-sized enterprises (SMEs),
• Increasing the SME Guarantee fund that helps SME’s get credit
• $500 million in loan guarantees for the Italian state investment bank for large businesses to get loans.

The fourth pillar includes $1.7 billion for suspending tax payments and giving out tax incentives. All businesses, the self employed, as well as individual taxpayers who work in sectors hit by the pandemic had taxes and social security contributions suspended in March 2020. Withholding taxes on the salaries paid to self-employed people with a revenue less than $433,500 a year was suspended for both March and April, 2020. 

Audits, tax litigation, and coercive collection of taxes are suspended until June, 2020. All expenses for sanitation, worker protection, or virus containment are eligible for a 50% tax credit. Stores and small businesses closed due to the emergency will receive a tax credit equal to 60% of March, 2020’s rent. Workers still working who make less than $43,400 a year will get a $108 bonus payout.

The law also includes $4.9 billion to support “Central and Local Public Administrations, including Municipalities.”

The second stimulus package was announced on April 6, and was considerably larger than the first. This “Restore Liquidity” law will offer $432 billion in loan guarantees from the government and from its state investment bank and export bank.

Brazil had a number of statutory limitations on its fiscal spending, and so fiscal relief and stimulus packages required significant alteration of the country’s existing fiscal rules.

Monetary Policy

On March 18, 2020, the Brazilian central bank lowered the benchmark interest rate by 0.5% to 3.75%. It was lowered again on May 6, by 0.75% to 3%, a record low number. 

Then, on March 26, the Brazilian central bank announced a series of measures that would add $227 billion in liquidity to credit markets. These include:

• Lowering reserve requirements
• Expanding one-year repo operations
• Announced a set of dollar-denominated repo operations
• New lines of credit to banks

On March 27, the Brazillian Central Bank further reduced capital requirements, both by reducing a required capital buffer and by lowering the loan-loss provision required for refinancing loans for the next six months .

On April 24, the Brazillian Central bank expanded the lending limit for lenders involved in its Special Temporary Liquidity Line backed by Guaranteed Financial Letters (LTEL-LFG). It also extended the settlement period for foreign exchange transactions related to imports and exports.

Fiscal Policy

Brazil announced $30 billion in fiscal stimulus on March 16, 2020. The package isn’t new spending. The Brazilian government said it will not relax its tight fiscal rules, so the package is made up of deferrals, payments that are moved up in the year, and money that will need to be moved from elsewhere in the budget. Included in this plan is:

• Moving payments for retirees up to May from December
• Three-month deferral for small- and medium-sized businesses
• Expansion of cash aid to the poorest families

On March 18, 2020, Brazil announced that it would pay $40 a month for three months to informal workers, the unemployed, and self-employed people who are part of low-income families. This program was expanded to $120 a month on March 24, 2020, and is estimated to transfer roughly $9 billion to upward of 24 million people. In addition, the import duties on medical supplies were reduced to zero. 

Things significantly expanded when the Brazillian government officially declared a state of calamity on March 20, 2020, (it was first requested on March 18) allowing the government to spend past its previously set spending limits.

On March 22, 2020, the Brazillian development bank suspended payments for small businesses and expanded its credit to small businesses by $1 billion, as well as increasing the credit limit for each borrower. On March 24, it provided $11 billion in additional liquidity and granted six-month extensions for repayment of debts. On March 27, it announced $1 billion in credit for startups.

The federal government announced a $8.7 billion plan to support state and local governments on March 23, including additional funding for public health services and suspension or renegotiation of state and local debts. This was expanded by another $13.5 billion on April 14.

On March 27, 2020, the Brazillian government announced $8 billion in credit to small- and medium-sized companies to pay wages as long as they don’t lay off employees. Some 85% of that money originated with the government and 15% came from private banks. 

In April, the Brazilian government enacted several additional policies to offer relief to the public. For instance:

• Low-income families were exempted from paying their electricity bills for three-months on April 8.
• The next day, Brazil allocated approximately $7.5 billion for housing credits, incentives to renegotiate mortgages, and cover 90-day mortgage deferments.
• Brazil allocated $800 million to support indigenous Brazillian communities on April 13.
• On April 20, 2020, the Brazilian government announced a $1.3 credit line to small, micro-sized, and individual entrepreneurs.
• On April 22, a 90-day deferment on installment payments was extended to people who are behind on taxes.

Canada, the world’s tenth largest economy, has made several major moves to combat the economic stresses of COVID-19. Its central bank has embarked on its first ever QE program, while its government has rolled out a major $75 billion relief package that includes expanded unemployment insurance and wage subsidies.

Monetary Policy

Canada’s central bank, the Bank of Canada (BOC), has cut its benchmark interest rate three times since early March 2020. Specifically, these cuts, which each lowered the rate by 0.5%, occurred on March 4, March 13, and March 27, 2020, bringing the rate from 1.75% to 0.25%.  

On March 12, 2020, the BOC added 6-month and 12-month repo operations, in addition to its existing 1-month and 3-month repo agreements . On March 18, 2020, BOC expanded the types of securities that could be used as collateral for repo operations. Then on March 20, it announced it was increasing the frequency of its repo operations to at least twice-weekly, from once a week. The BOC announced it was activating its Contingent Term Repo Facility on April 3, 2020, which offers extra 1-month repo agreements and is activated to “counter severe market-wide liquidity stresses.” 

A bank lending program called the Standing Liquidity Facility was expanded. It provides loans to a wider array of banks and accepts a wider array of collateral than repo programs. It also launched a program, originally announced in 2019, called the Standing Term Liquidity Facility, which would provide loans to an even wider array of banks and accept an even wider array of collateral than the Standing Liquidity Facility.

The BOC has announced it’s first-ever QE programs. Throughout March, 2020, the BOC announced programs to purchase $2.1 billion in government bonds each week until, “the economic recovery is well underway.” Throughout the month it announced a series of open-ended purchasing programs for purchase mortgage bonds, bankers acceptances, money market securities from provincial governments, and commercial paper.    In April, it announced a provincial-government-bond buying program that will hold up to $35.5 billion in bonds and a $7.1 billion corporate bond buying program, both of which will start in early May, 2020. 

On March 18, the BOC asked retailers to continue accepting cash to ensure there was no disruption in the cash supply. In addition the Office of the Superintendent of Financial Institutions (OSFI), Canada’s financial regulatory body, lowered bank reserve requirements, thus allowing banks to lend an additional $214 billion.

Fiscal policy

Canada has launched an escalating series of measures. The first, announced on March 11, 2020, contained $781 million dollars to support research, help provincial governments, and invest in such public health measures as mask purchases. On March 13, the government announced a $7.1 billion business loans program. It announced a $75 billion relief package on March 25. It contained, among other things, the following:

• Sending a monthly $1,420 payment for the next four months to people who have lost their income due to COVID-19.
• Increasing the Canada Child Benefit for 2020 by $213 per child
• One-time $284 payment to low-income individuals
• Extension on filing both U.S. and corporate income taxes until June. 1, 2020, and payment of taxes until September 1, 2020
• Allowing lenders to offer payment deferrals for up to six months for government-insured mortgages
• A program lasting from March 15 to June 6, 2020, covering 75% of wages up to $600 a week for businesses that have suffered a revenue decline of 15% or more.
• A 10% wage subsidy for small businesses not eligible for the above subsidy
• 75% rent relief for small businesses that have had to close or lost 70% of their revenue from COVID-19.
• Deferred sales tax and import duty payments until June 30, 2020

In addition, the Canada Mortgage and Housing Corporation (CMHC), a government-owned corporation that works to provide housing, announced on March 16, 2020, that it will purchase up to $35.6 billion in insured mortgages. This amount was increased to $106 billion on March 26.

The Russian economy is heavily dependent on oil and gas exports, which means that the large drop in demand for oil due to quarantines and as a result of the Saudi-Russian oil price war was especially significant to the Russian economy. Plus, because reporting on the Russian government’s response is restrictive and believed to be incomplete, the data below is less comprehensive than for other countries.

Monetary Policy

On April 24, 2020, the Russian central bank, the Bank of Russia, cut its benchmark interest rate by 0.5% to 5.5%. On March 27, the Bank of Russia allocated $2 billion from its SME lending facility to specifically help banks make loans to small- to medium-sized enterprises so that those SME’s can pay their employees wages during the crisis. On April 3, this lending program allowed banks above a certain credit rating to be given loans without collateral. The interest rate for this lending facility was lowered from 4% to 3.5% on April 24.

On March 10, the Bank of Russia implemented regulatory changes to increase lending including allowing banks to hold a lower capital buffer. These were followed up on April 3 by further lowered capital requirements, expanded the collateral banks can use for central-bank refinancing, and suspended enforcement actions against securities traders for violating disclosure requirements between March 1, 2020. and January 1, 2021. On April 10, 2020, banks were given the option to not reassess the creditworthiness of loans in sectors hurt badly by the pandemic for the purpose of balance-sheet quality, as well as allowing non-governmental pension funds to not reassess the value of assets acquired before March 1.

Fiscal Policy

Russia announced it was creating a $4 billion fund to help its economy during the COVID-19 crisis on March 20, 2020.  On April 7, President Putin announced that families with children would receive monthly payments of $67 per family through June 2020.

On April 15, the Russian government announced a second stimulus package including:

• $160 a month payments to SME’s for each employee in April and May, provided they keep 90% of their workforce.
• $2.6 billion for regional governments
• $300 million for airlines

South Korea responded to the COVID-19 pandemic of 2020 early, compared to some Western nations. South Korea had a successful and forced early lockdown period which led it to began opening up in the beginning of May 2020. While concrete data is still scarce, it is possible that lifting the lockdown restrictions may have led to a new spike in infections.

Monetary Policy

The Bank of Korea (BOK), the South Korean Central Bank, cut interest rates by 0.5% on March 17, 2020, down to 0.75%. It also lowered the interest rate on its Bank Intermediated Lending Support Facility from 0.5%-0.75% down to 0.25%.

On March 26, 2020, the Bank of Korea adopted a weekly repurchase facility with no limit to how much liquidity it will supply. It also broadened the collateral that can be used for repo operations, and expanded the list of banks and non-bank institutions it would offer repo agreements to. It further broadened the allowable collateral for repo operations on April 10, 2020.

On February 27, it raised the ceiling on its Bank Intermediated Lending Support Facility by $4.1 billion to promote loans to small- and medium-sized enterprises. It also allocated $820 million to increase bank loans to startups. It says that this liquidity will lead to twice that amount in increased bank lending. It launched a new lending facility, the Corporate Bond-Backed Lending Facility, on April 16, 2020. It will lend to banks using corporate bonds as collateral, run for three months, and lend up to $8.2 billion.

On March 12, 2020, the Bank of Korea expanded the types of collateral that banks can provide for BOK loans. On March 26, it loosened the restrictions and regulations on foreign exchange trading in order to expand capital flows. On March 31, it lowered the capital and reserve requirements for Korean banks.

Fiscal Policy

South Korea announced a $9.8 billion stimulus and relief package on March 3, 2020. Among other things it includes:

• $1.9 billion to medical funding for hospitals and quarantine efforts
• $2.5 in small- and medium-sized business subsidies to help companies pay workers
• Child-care subsidies
• Job retraining for people who have lost their jobs (it is unclear if this is specific to COVID-19 job losses)

On March 23, 2020, South Korea launched an $80 billion package to rescue failing companies, a package that had doubled in size since it was originally proposed on March 18. The full package included $43 billion in loan guarantees and low-interest loans to Korean companies and $37 billion in asset purchases and loans to stabilize the stock and bond markets. 

The Korean government announced that it would defer or exempt payment for pension and health industry contributions, as well as electrical bills for low income families, small and medium enterprises, and some self-employed people on March 30. It included payments of up to $820 per family for individuals and families in the lower 70% of income brackets.

South Korea unveiled $29.5 billion of additional financing for exporters on April 8, and $14.8 billion in additional liquidity for domestic companies, including prepaying for government contracts and purchases.

On April 22, the Korean government announced another $70 stimulus and relief package. It included:

• $32.8 for a program of loans, loan guarantees, and investments in businesses in sectors hit worst by the pandemic.
• $28.7 billion in additional support for financial markets to increase corporate bond purchases, including companies with lower credit ratings, as well as offering liquidity to “micro-business owners.”
• $8.2 billion to shore up unemployment benefits.

Australia has managed to flatten the curve of infection spreading relatively well, and its government started deliberating how to end the lockdown as of early May 2020.

Monetary Policy

Australia’s central bank, the Reserve Bank of Australia (RBA), has taken fewer steps than some other countries to address the financial volatility in light of the pandemic of 2020. It lowered its benchmark interest rate twice; March 3, 2020, and March 19, 2020. This brought it down from 0.75% to 0.25%. 

On March 16, 2020 the RBA announced significantly expanded repo operations. On March 19, it started a $58 billion lending facility to make loans to banks to allow them to expand business lending, especially to small and medium-sized businesses. It also announced expanded bond purchases to lower the three-year treasury bond interest rate. On March 20, the Australian Banking Association announced Australian banks would defer loan payments for small businesses that had suffered from the pandemic for six months. The Australian Prudential Regulation Authority lowered capital requirements.

Fiscal Policy

The Australian government launched three relief packages worth a total of roughly $140 billion. The first, announced on March 12, 2020, contained $11.4 billion in spending on the following:

• $4.4 billion in payments of up to $16,300 to small and medium-sized businesses to encourage hiring
• $3.1 billion in one-time, $490 payments to people collecting government benefits, including the elderly, the poor, and veterans.
• $650 million in business subsidies to businesses in industries such as a tourism that have been hit hardest by COVID-19.

The second package, announced March 22, 2020, contained $43 billion in spending. It included, among other things, authorized another $16.5 billion in payments of up to $65,400 to small businesses to cover wages and $26.1 to guarantee loans of up to $164,000 to small businesses. It also contained an addition $490 welfare payment. 

The third stimulus package, containing $85 billion in spending was announced on March 30, 2020, and its landmark feature is a “jobkeeper payment.” This is a $980 payment made to employers every two weeks to cover wages.

On March 15, 2020, the central banks of Canada, the U.K. Japan, the U.S., Switzerland, and the European Central Bank all agreed to lower the price of U.S. dollar liquidity swap line arrangements. These are a type of foreign currency swap that helps central banks ensure there is money available for people and businesses who want to take out loans denominated in dollars, as opposed to the local currency. By decreasing the price of these swaps, it makes it easier and cheaper to borrow money in dollars outside the U.S. The Fed announced it was establishing similar swaps on March 19, 2020, with the central banks of Australia, Brazil, Denmark, South Korea, New Zealand, Singapore, and Sweden.

The International Monetary Fund has, as of April 17, 2020, provided the following stimulus and relief efforts:

• Doubled access to its Rapid Credit Facility and Rapid Financing Instrument to allow emergency funding to meet the expected $100 billion demand.
• Offering debt service relief from its Catastrophe Containment and Relief Trust. As of April 17, 2020, 25 countries have received debt service relief.
• Establishing a short-term liquidity line for additional lending

The World Bank announced an initial package of up to $12 billion in loans for countries to help cope with the effects of the coronavirus on March 3, 2020. Some $8 billion of the funding is from new loans and the remaining $4 billion is redirected from current lines of credit. This was expanded to $14 billion on March 17. The World Bank and its associate organizations have announced aid to a plethora of companies and countries around the world. The World Bank Group (the world bank and its affiliate organizations) said it will be providing up to $160 billion in financing over the next year including:

• $50 billion to in grants and financing with “highly concessional terms” from the International Development Agency
• $8.9 billion from the International Finance Corporation to companies hurt by the pandemic, as of April 29.
• A $6.5 billion lending facility from the Multilateral Investment Guarantee Agency to support private lenders.