A timeline of central bank responses to the COVID-19 pandemic

March 30, 2020 1:45 PM
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REUTERS/Jason Lee

The near certainty of a major global recession means that governments must continue to harness both monetary and fiscal policy to soften the blow. Fiscal policy must do the heaviest lifting, but monetary policy can play an important role. The following timeline displays the actions taken by the central banks of the five largest economies: the US Federal Reserve (Fed), the European Central Bank (ECB), the People’s Bank of China (PBOC), the Bank of Japan (BOJ), and the Bank of England (BOE).

Not surprisingly, the PBOC acted first in the wake of the initial outbreak in China. Other central banks began to act in March, with the Fed taking the most aggressive early actions. The ECB and BOE have stepped up their responses in recent days. The BOJ has been less aggressive, in part because Japanese financial markets have shown fewer signs of stress and in part because the BOJ has less scope to ease policy.

Central bank actions take three forms:

  • Reducing interest rates on safe assets by lowering rates paid by the central bank on its own liabilities and by buying more government bonds to push down their yields at various maturities, an action also known as quantitative easing (QE).
  • Lending freely to banks, other financial institutions, foreign central banks, and even nonfinancial institutions with sufficient collateral.
  • In their capacity as financial sector supervisors (or working with supervisory agencies), encouraging financial institutions to extend credit to firms adversely affected by the crisis.

In a crisis, ensuring the free flow of credit is essential to prevent sudden stops in lending and a cascade of defaults that would freeze up economic activity. The Fed set up programs in the Great Recession of 2008–09 that kept credit flowing and has proved willing to reestablish those programs quickly.

Reducing interest rates takes time to have an effect, making this action less useful to deal with the immediate drop in spending under way. The Fed and the PBOC can lower interest rates further if needed, especially on longer-term bonds. The BOJ and the ECB have very little scope to do so, with the BOE’s scope between that of the BOJ and the Fed. The ECB can help a lot by reducing the spreads of Italian and Spanish bond yields over German yields. Its recent announcement of a large increase in bond purchases coupled with flexibility in the allocation of purchases across countries suggests an intention to reduce those spreads.

Timeline of central bank responses to the COVID-19 pandemic

 

Economy

Action type

Description

Feb 1, 2020

China

credit
monetary
regulatory

announced multi-agency package to support financial system
source

Feb 2

China

credit

increased bank liquidity via large repo operation
source

Feb 6

China

credit

announced RMB300 billion of special re-lending through national and local commercial banks
source

Feb 7

China

regulatory

announced steps to support bond issuance by financial institutions
source

Feb 16

China

monetary

reduced medium term lending facility rate by 10 basis points (bp)
source

Feb 19

China

monetary

reduced 1-year loan prime rate by 10bp and 5-year loan prime rate by 5bp
source

Feb 25

China

credit
monetary
regulatory

increased re-lending and re-discount quota; increased policy bank lending
source

Mar 1

China

credit

announced temporary deferred repayment of principal and interest on loans to small and medium-sized enterprises
source

Mar 1

Japan

none

stated BOJ is closely monitoring developments
source

Mar 2

Euro area

none

stated ECB is closely monitoring developments and ready to act
source

Mar 3

United Kingdom

none

stated BOE is monitoring the situation closely
source

Mar 3

United States

monetary

reduced federal funds rate by 50bp (unscheduled)
source

Mar 9

United States

credit

increased repo offerings by $75 billion
source

Mar 11

United Kingdom

credit
monetary
regulatory

reduced bank rate by 50bp; announced Term Funding Scheme with additional incentives for SMEs; maintained stock of corporate bond and gilts; reduced counter-cyclical capital buffer; communicated supervisory expectation that banks should not increase dividends or other distributions, such as bonuses
source

Mar 11

United States

credit

increased repo offerings further
source

Mar 12

Euro area

credit
monetary

announced additional long-term refinancing operations (LTROs) for banks, more favorable LTRO terms in upcoming operations, additional asset purchases, temporary capital, and operational relief to banks
source

Mar 12

United States

credit

extended maturity distribution of Treasury security purchases; increased term repo operations by large amount (more than $1 trillion)
source

Mar 13

Japan

credit

offered unspecified “ample” liquidity for repo market
source

Mar 13

China

monetary

reduced bank required reserves by 0.5 to 1 percentage point
source

Mar 15

United States

credit
monetary
regulatory

reduced federal funds rate by 100bp to near zero; announced purchases of $500 billion in longer-term Treasury securities and $200 billion in agency mortgage-backed securities; reduced primary credit (discount window) rate by 150bp to 0.25 percent; announced miscellaneous other steps to support the flow of credit
source

Mar 15

United States

credit
monetary

coordinated central bank action to enhance the provision of global US dollar liquidity
source

Mar 16

Japan

credit
monetary

increased purchases of ETFs, JREITs, and loans secured by commercial paper and corporate bonds
source

Mar 17

United States

credit
regulatory

urged banks to use capital and liquidity buffers in joint supervisory statement
source

Mar 17

United States

credit

announced Commercial Paper Funding Facility
source

Mar 17

United Kingdom

credit

announced Covid Corporate Financing Facility
source

Mar 17

United States

credit

announced Primary Dealer Credit Facility
source

Mar 18

Euro area

credit
monetary

increased asset purchases by €750 billion through 2020
source

Mar 18

United States

credit

announced Money Market Mutual Fund Liquidity Facility
source

Mar 19

United States

credit

established temporary dollar liquidity arrangements with additional central banks
source

Mar 19

United Kingdom

credit
monetary

reduced bank rate 15bp; increased asset purchases by £200 billion; enlarged Term Funding Scheme
source

Mar 19

Euro area

credit

clarified new asset purchases will be flexibly allocated across members
source

Mar 20

Euro area

credit

reactivated swap line with Danmarks Nationalbank
source

Mar 20

United States

credit

coordinated central bank action to further enhance the provision of US dollar liquidity
source

Mar 20

United States

credit

expanded money market mutual fund liquidity facility to make loans secured by certain municipal money market mutual funds
source

Mar 22

United States

regulatory

provided additional information to encourage financial institutions to work with borrowers affected by COVID-19
source

Mar 23

United States

credit

announced Treasury purchases and agency MBS in "amounts needed"; included commercial MBS in purchases; announced measures to provide a combined $300 billion in new financing, including $30 billion from the Exchange Stabilization Fund (ESF); established Primary and Secondary Market Corporate Credit Facilities; established Term Asset-Backed Securities Loan Facility enabling asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration, and certain other assets; expanded Money Market Mutual Fund Liquidity Facility and Commercial Paper Funding Facility
source

Mar 24

Japan

credit

announced minor measures to maintain stability or repo market
source

Mar 24

United Kingdom

credit

launched Contingent Term Repo Facility
source

Mar 26

United States

credit
regulatory

working with other financial supervisors, communicated to banks various regulatory actions to encourage lending
source

Mar 26

United Kingdom

none

took no additional steps at regular policy meeting
source

Mar 27

United States

credit
regulatory

working with other financial supervisors, communicated to banks various regulatory actions to encourage lending
source

ECB = European Central Bank; BOE = Bank of England; BOJ = Bank of Japan

Notes: Timeline reflects actions taken through March 27, 2020. Dates are based on central bank announcement time in US Eastern Time, available in the data appendix.

Glossary

Counter-cyclical capital buffer: An extra amount of capital banks must hold in good times that can be relaxed in emergencies to prevent banks from tightening lending standards.

Discount window: A central bank lending facility that accepts a broad range of collateral, typically bank loans to households and businesses.

ETF: Exchange-traded fund. A collection of financial securities that is traded as a single security.

Gilt: Term for British government bonds.

JREIT: Japan real estate investment trust. A special purpose company that issues shares and holds a portfolio of real properties.

LTRO: Long-term refinancing operation. Tool used by the European Central Bank to lend to banks at terms of three months to three years.

MBS: Mortgage-backed security. A bond that is backed by hundreds of individual mortgage loans.

Prime rate: A benchmark interest rate for bank lending to high quality borrowers.

Repo: Short for repurchase agreement. This is a loan that is collateralized by high-grade securities, typically bonds issued or guaranteed by the government. Technically, the central bank purchases the securities, and the borrower promises to buy them back at a fixed price on a given date.

Required reserves: The fraction of bank deposits that must be held in an account at the central bank. In the United States and other countries that have engaged in large-scale asset purchases, or quantitative easing, banks typically hold a lot more reserves than are required.

SMEs: Small and medium-sized enterprises.

Term repo: Repo with a fixed term longer than overnight, often one month or three months.

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