The equity committed by the U.S. Treasury facilitated broad support for large employers.8 The facilities’ combined capacity leveraged Treasury’s committed equity contribution of $ billion by up to 10 times. Third, the support provided by the facilities is broad. Excluding banks, all U.S. domiciled firms with an investment-grade rating prior to the facilities’ announcement were eligible, thus concentrating support for firms that primarily faced liquidity strains due to the pandemic. The facilities also provide support for firms with ratings just below investment grade to mitigate the “cliff effects” at the boundary of our support.9 Together, these programs backstop about 80 percent of corporate bonds outstanding, excluding those issued by banks.10 Finally, policymakers signaled their willingness to adapt. Even before purchases began, the size of the equity injection and purchasing power of the facility was increased, and the scope was broadened to allow support for “fallen angels,” or bonds downgraded below investment grade (but no lower than BB-) after the CCF announcement. Implementation Matters In addition to program design, the principles that guided the implementation of these facilities—access, transparency, and accountability—reinforced their credibility and impact. Providing broad access to the facilities for corporate borrowers was essential, both to expand the reach of backstop support for the economy, and to ensure that the facilities avoid the allocation of credit. Our initial purchases were in a diversified set of ETFs that provide broad exposure to the market for U.S. corporate bonds. Purchasing via ETFs offered efficient and rapid transmission of broad-based support to the secondary market.
One example is that we have clearly communicated that we assume that the repo rate will remain at 0.25 per cent for a fairly long period of time. In our most recent forecast the repo rate remains around this level until autumn 2010. Another measure is that the Riksbank lends money to the banks at longer maturities than normal. The purpose is to contribute to continued lower interest rates on loans to companies and households. As I mentioned when I described the economic situation, we decided at our monetary policy meeting two weeks ago to supplement the low repo rate with such a loan. …and to safeguard financial stability. The measures implemented to safeguard financial stability have similar effects, but the fundamental aim is different. The intention has mainly been to make it easier for the Swedish banks to manage their short-term and medium-term funding. Particularly during the most intense phase of the crisis it was difficult for the banks to borrow other than at very short maturities. It may also be necessary to help financial markets that have suffered serious disruptions to function more smoothly. One can say that the Riksbank has functioned as an intermediary in the bank system – a function that the market does not normally require. One  BIS Review 138/2009  7  example in this area, too, is the loans offered to the banks at longer maturities, in both Swedish kronor and US dollars.