Member Article

Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), $500 billion of emergency relief has been allocated to be used at the discretion of the Secretary of the Treasury (the “Secretary”) to make loans, loan guarantees, and other investments in support of eligible businesses, states and municipalities.

Overview

Of the $500 billion allocated under the Act, $454 billion is available to United States business that has not otherwise received adequate economic relief in the forms of loans or loan guarantees provided under the CARES Act. The Act then covers all of those businesses not covered by any other portion of the CARES Act, including those qualifying for the SBA loan provisions of the CARES Act and those medical facilities and institutions provided for elsewhere in the CARES Act.

The funds are primarily also only meant to provide relief for those “covered losses” incurred directly or indirectly as a result of coronavirus, as determined by the Secretary. There seems to be a great deal of discretion given to the Secretary to determine what losses are a result, whether directly or indirectly, of the economic distress caused by the coronavirus.

To achieve these purposes, the Secretary may make loans and loan guarantees to, and other investments in, programs established by the Board of Governors of the Federal Reserve System (the “Fed”) for the purpose of providing liquidity to the financial system that supports lending to the eligible businesses, states or municipalities. This drafting creates an indirect process of providing relief to eligible businesses, states and municipalities.

Assistance for Eligible Businesses, States and Municipalities through Fed Programs

The Act allows the Fed, through its powers under Federal Reserve 13(3), to purchase obligations and other interests directly from issuers or in the secondary markets and to make loans directly to some eligible businesses and financial institutions. In essence, the Secretary allocates money to the Fed and then the Fed is able to divert funds to the applicable entities. Federal Reserve 13(3) is a critical tool that can be used in times of crisis to help mitigate extraordinary pressure in financial markets that would otherwise have severe adverse consequences for households, businesses, and the U.S. economy.

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