Economics
Fed’s Power to Buoy Corporate Debt Market Curbed by Bailout Law
- Companies face eligibility test for central bank support
- Confusion may slow program, make it less effective in crisis
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When Congress gave the Federal Reserve $750 billion of emergency firepower to backstop the country’s biggest companies, some lawmakers insisted on inserting a clause that now threatens to undermine the program -- and could pose a major problem if markets go haywire again.
Under the stimulus bill passed last month to combat the coronavirus crisis, the central bank is wading into corporate credit markets for the first time since the 1950s. One Fed facility will lend directly to companies and another will buy bonds in the secondary market. Yet the legislation also imposed a key condition: Only a borrower with “significant operations in and a majority of its employees based in the United States” is eligible for Fed support.