On Tuesday, the US Federal Reserve announced that it will be lowering the cost of emergency loans for states and cities, after receiving a swarm of backlash that the facility’s loans were priced well above attainability.
The Municipal Liquidity Facility was put in place on May 26, with the goal of providing much needed financial support to state and local governments that became heavily overwhelmed amid the coronavirus pandemic. The facility set aside a total of $500 billion worth of loans, with pricing based on the borrower’s credit rating. Those eligible governments that had a credit rating of AAA/AAA- would be charged 150 basis points, while those with below investment grade rating would have to take on pricing of 590 points.
However, the Fed was soon faced with a barrage of criticism, as state and local governments complained that the costs were too high, and would ultimately further burden them with even more unwarranted debt. As of August 5, there has only been one loan issued for the amount of 41.2 billion– to the state of Illinois. With the apparent lack of demand for the loan facility, the Fed had no choice but to reduce loan pricing to a range between 100 and 540 basis points.
Information for this briefing was found via the US Federal Reserve. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
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