COVID-19 Updates 5/12

Fed Facilities

Today, the Fed updated the term sheet and FAQs for the Term Asset-Backed Securities Loan Facility (TALF). Last month MFA recommended that the Fed clarify the definitions of eligible borrowers and eligible collateral – clarifications that would be necessary for funds to participate.  Today’s announcement responds to key points raised by MFA and provides guidance consistent with our suggestions to (i) facilitate the inclusion of investment funds as eligible borrowers, (ii) remove the requirement that ABS be issued by a U.S. Company, and (iii) provide clarity on eligible underlying assets for ABS. For more information, please see MFA’s full analysis of these changes.

Leverage/Systemic Risk

MFA spoke to leadership of the Financial Stability Board (FSB) to share perspectives on the March markets turmoil and to offer MFA as a key resource to the FSB as it launches its non-bank finance work program. MFA’s objective is to provide data and analysis to demonstrate that hedge funds were not a source of systemic risk, even as the financial system as a whole suffered a sharp synchronous shock that should be examined. The FSB representative expressed the view that the March market developments suggest that an activities-based approach to examining risks in the financial markets is appropriate.  He noted that the FSB work will be led by a high-level group of market regulators and macro-prudential regulators who will have the aim of assessing the balance of risks and benefits from the nonbank finance sector.  He welcomed MFA’s inputs and suggested that we reengage around the G-20 ministerial meetings in July.

On the Hill

Today, House Democrats introduced their version of the next phase of COVID-19 relief legislation, the ‘‘Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act’’ (H.R. 6800).  The 1,800 page bill covers many topics on Speaker Pelosi’s priority list including $500 billion in state funding, $375 billion in local funding, increased benefits to SNAP and the District of Columbia, as well as funding for essential workers and hospitals. Click here for a section by section summary of the HEROS Act.

The House Rules Committee plans to meet Thursday morning on both the HEROES Act and proxy voting rules, with the full House voting as early as Friday.

The Senate Banking Committee convened via video conference today for a hearing on supervision and regulatory developments with the prudential regulators. Of note to MFA members–when asked by Senator Pat Toomey (R-PA) about allowing non-bank lenders participating in the Main Street Lending Facilities, Vice-Chair Quarles stated the Fed started with the entities it was used to dealing with, but “with all the facilities we are looking at how many aspects of them can be improved and expanding the category of counterparties is a way to do that.” When asked about whether the Fed would expand the Term Asset-Backed Securities Loan Facility (TALF), Vice-Chair Quarles stated “we are getting a lot of input on what additional types of securitizations should be included.”

The House Select Subcommittee on the Coronavirus Crisis announced it will meet tomorrow, Wednesday, May 13 at 3:00 p.m. ET. This is the first briefing of the Subcommittee since it was approved by the full House on April 23. The livestream is available here.