The Financial Response to the COVID-19 Pandemic

33 Pages Posted: 6 Aug 2020

See all articles by Michael S. Barr

Michael S. Barr

University of Michigan Law School; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; University of Michigan, Center on Finance, Law, and Policy

Howell E. Jackson

Harvard Law School

Margaret E. Tahyar

Davis Polk & Wardwell LLP

Date Written: August 1, 2020

Abstract

We are living through extraordinary times as the United States has struggled to deal with the global COVID-19 pandemic, and as of the writing of this paper, we remain in the midst of the crisis. We still do not know what the full economic and financial consequences of the pandemic will be, but they are likely to persist for an extended period, as many people are unlikely to return to normal work or consumption patterns soon, and household and business defaults are likely to increase and negatively affect the financial sector. This paper, written to assist faculty in teaching about the pandemic, focuses on key actions taken by the financial regulators in response to the crisis so far, giving a detailed summary of the actions taken by the Federal Reserve, the Treasury Department, and Congress. We discuss the Federal Reserve’s monetary policy actions, emergency lending facilities, and supervisory forbearance by the federal banking agencies. We also provide a summary of financial provisions of the CARES Act, including an analysis of the Paycheck Protection Program. We explore a number of central themes already emerging, including the blurry line between monetary policy and fiscal policy. We also highlight the fact that unlike the Financial Crisis of 2008, today’s economic crisis is caused by the failure to take sufficient public health actions to contain a global pandemic, not poor policy and risk choices in the financial markets; the fact that the crisis is caused by a public health failure poses unique problems for economic and financial policymakers in crafting responses.

Keywords: Pandemic, COVID-19, coronavirus, financial regulation, monetary policy, financial crisis, CARES Act, Paycheck Protection Program, fiscal policy

Suggested Citation

Barr, Michael S. and Jackson, Howell Edmunds and Tahyar, Margaret E., The Financial Response to the COVID-19 Pandemic (August 1, 2020). Available at SSRN: https://ssrn.com/abstract=3666461 or http://dx.doi.org/10.2139/ssrn.3666461

Michael S. Barr (Contact Author)

University of Michigan Law School ( email )

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University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

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University of Michigan, Center on Finance, Law, and Policy ( email )

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Howell Edmunds Jackson

Harvard Law School ( email )

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Margaret E. Tahyar

Davis Polk & Wardwell LLP ( email )

United States

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