Overview of Federal Reserve Actions and Activities
In keeping with the Federal Reserve's mandate to promote maximum employment and stable prices and its responsibilities to promote financial stability, the Federal Reserve acted with unprecedented speed and force to address the economic effects of the COVID-19 pandemic. In addition to rapidly cutting the federal funds rate to near zero, the Federal Reserve undertook a wide array of other measures to support the flow of credit in the economy, supporting lending to households, businesses of all sizes, nonprofits, and state and local governments.1 The actions and usage of the programs are reflected on the Federal Reserve's balance sheet.
General Balance Sheet Trends
As the Federal Reserve operationalized the measures to combat the COVID-19 shock, the size and composition of its balance sheet changed quickly. The size of the balance sheet increased from $4.3 trillion in mid-March 2020 to a peak of nearly $7.2 trillion in early June. Then, reflecting, in part, improvements in financial market functioning, the size of the balance sheet decreased to a bit under $7 trillion as of August 12. The size of the balance sheet relative to nominal gross domestic product (GDP) currently stands at about 35 percent, a level not seen since World War II.
In late March and early April, many of the Federal Reserve's measures to stabilize financial markets contributed to the increase in total assets. As of mid-April, purchases of Treasury securities and agency MBS amounted to $1.5 trillion, repurchase agreements (repos) stood at about $180 billion, and central bank liquidity swaps were near $380 billion. As financial market conditions across the globe began to improve, the pace of asset purchases slowed and repos and swap draws outstanding substantially diminished. Moreover, usage of many of the liquidity facilities established in March and April began to subside.
On the liabilities side of the balance sheet, reserves in the banking system rose in response to the net increase in the Federal Reserve's assets. Between mid-March and mid-August, reserve balances steadily climbed, and they ended the period around $2.8 trillion. All told, the change in size and composition of the balance sheet was rapid and consistent with the quick response by the Federal Reserve to provide some relief and stability to the U.S. economy in the midst of an economic downturn without modern precedent.
Change in Federal Reserve Assets
As shown in table 1, several types of assets associated with the Federal Reserve's actions and programs contributed to a noticeable increase in the size of the balance sheet from mid-March to mid-August 2020. The largest contribution was a $2.36 trillion increase in holdings of Treasury and agency mortgage-backed securities (MBS) (figure 1). This increase reflects asset purchases to support the smooth functioning of the markets in which these assets are issued and traded, markets that are vital to the flow of credit in the economy, and the transmission of monetary policy to broader financial conditions.
Table 1. Assets, liabilities, and capital of the Federal Reserve System
|March 11, 2020||August 12, 2020||Change from March 11, 2020|
|Securities held outright||3,897||6,256||2,359|
|U.S. Treasury securities||2,523||4,320||1,797|
|Federal agency debt securities||2||2||0|
|Agency mortgage-backed securities||1,372||1,934||562|
|Discount window credit||0||3||3|
|Primary Dealer Credit Facility||0||1||1|
|Money Market Mutual Fund Liquidity Facility||0||11||11|
|Paycheck Protection Program Liquidity Facility||0||68||68|
|Net portfolio holdings of Commercial Paper Funding Facility II LLC||0||9||9|
|Net portfolio holdings of Corporate Credit Facility LLC||0||44||44|
|Net portfolio holdings of Main Street Facilities LLC||0||38||38|
|Net portfolio holdings of Municipal Liquidity Facility LLC||0||16||16|
|Net portfolio holdings of Term Asset-Backed Securities Loan Facility II LLC||0||10||10|
|Central bank liquidity swaps||0||100||100|
|Federal Reserve notes||1,771||1,957||187|
|Deposits held by depository institutions other than term deposits||1,780||2,828||1,048|
|Reverse repurchase agreements||233||218||-15|
|Foreign official and international accounts||232||218||-14|
|U.S. Treasury, General Account||372||1,635||1,263|
|Treasury contributions to credit facilities||0||114||114|
Note: Rounded to billions.
Source: Federal Reserve's H.4.1 statistical release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," https://www.federalreserve.gov/releases/h41/.
Other assets that boosted the size of the balance sheet include
- an increase in central bank liquidity swaps of $100 billion, as swap arrangements were expanded to include more frequent operations, longer tenors, and additional central banks to ease strains in global funding markets;
- new liquidity and credit market facilities and new terms of discount window lending—enacted to support the flow of credit to households, businesses, nonprofits, and municipalities.
New Liquidity and Credit Market Facilities
As of August 12, the Federal Reserve's new liquidity and credit market facilities had total assets of $197 billion (included in figure 2), which for the limited liability companies include assets purchased as well as the Treasury's equity contribution and a few other assets. Table 2 provides a summary of the liquidity and credit market facilities, including their utilization.
Table 2. Federal Reserve liquidity and credit market facilities
|Name||Target||Maximum size||Utilization as of
|Primary Dealer Credit Facility||Broker-dealer liquidity||Unlimited||0.7|
|Money Market Mutual Fund Liquidity Facility||MMF liquidity||Unlimited||11.5|
|Paycheck Protection Program Lending Facility||Funding of PPP loans||Unlimited||68.2|
|Commercial Paper Funding Facility* *||Newly issued CP||Issuer max outstanding limit||0.0+|
|Primary Market Corporate Credit Facility*||Newly issued corporate debt||Combined $750 billion||12.4|
|Secondary Market Corporate Credit Facility*||Secondary market corporate debt|
|Main Street New Loan Facility*||Small and medium-sized businesses and nonprofit organizations||Combined $600 billion||0.2|
|Main Street Expanded Loan Facility*|
|Main Street Priority Loan Facility*|
|Nonprofit Organization New Loan Facility*|
|Nonprofit Organization Expanded Loan Facility*|
|Municipal Liquidity Facility*||States and municipal governments||$500 billion||1.2|
|Term Asset-Backed Securities Loan Facility*||Newly issued ABS||$100 billion||1.6|
Note: Components may not sum to totals because of rounding. CP is commercial paper, MMF is money market fund, ABS is asset-backed securities, and PPP is Paycheck Protection Program.
* The dollar amounts reported for these facilities on the Federal Reserve's balance sheet (and in table 1) include not only the assets purchased by the Federal Reserve (as shown here in table 2), but also the Treasury contributions to the credit facilities (as shown in the box "U.S. Department of the Treasury Support for Liquidity and Credit Market Facilities"), as well as other assets. For more details, see the discussion of the Limited Liability Companies in the Recent Developments section of this report and table 4 in the Federal Reserve's H.4.1 statistical release, https://www.federalreserve.gov/releases/h41/current/default.htm.
Source: Federal Reserve Board, statistical release H.4.1, "Factors Affecting Reserve Balances."
Change in Federal Reserve Liabilities
The Federal Reserve's actions and programs resulted in an increase in deposits at the Federal Reserve held by depository institutions, which consist nearly entirely of reserve balances. These balances rose by $1 trillion between mid-March and mid-August (figure 3). In addition, a few other liabilities rose over this period. The Treasury's General Account (TGA) balance increased amid a surge in Treasury bill issuance in anticipation of increased crisis-related expenditures, with a peak level of $1.83 trillion in late July and a still sizable level in mid-August.
Meanwhile, demand for Federal Reserve notes continued to increase throughout this period. And, the Federal Reserve recognized, as a liability, the support committed as an equity contribution by the U.S. Treasury for many of the credit facilities (see box "U.S. Department of the Treasury Support for Liquidity and Credit Market Facilities" for more details).