Federal Reserve Promises Regulatory Assistance to Financial Institutions Affected by Coronavirus

Central bank signals accommodations to regulated institutions hit by staffing shortages, or dealing with borrowers hurt by the impact of fast-spreading disease.
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The Federal Reserve said Monday it was encouraging financial institutions to meet financial needs of customers and members affected by the coronavirus.

In a statement released after the bell, Monday, the Fed said that “financial institutions should work constructively with borrowers and other customers in affected communities. Prudent efforts that are consistent with safe and sound lending practices should not be subject to examiner criticism.”

In addition, the Fed and state regulators “recognize the potential impact of the coronavirus on the customers, members, and operations of many financial institutions and will provide appropriate regulatory assistance to affected institutions subject to their supervision,” according to the statement.

The Fed sought to head off a potential economic slowdown from the croronavirus with a surprise 50-basis points intra-meeting rate cut last week

The move did little to stop financial markets from falling, and appeared to only hasten the decline in federal interest rates to historic lows. 

On Wall Street Monday, the Dow Jones Industrial Average finished down 2,013 points, or 7.78%, to 23,851, the S&P 500 declined 7.6% and the Nasdaq sank 7.29%. The Dow had its worst day since December 2008.

The Fed meets again next week, with investors widely anticipating further rate cuts to near zero, as the bank works to prop up economic growth being hard hit by the worldwide spread of the coronavirus and the potential for a global recession.

Other international financial leaders have begun urging wide-scale fiscal stimulus spending in the face of the coronavirus which all but shut down China's economy last month, as the country locked down millions of people in an effort to slow the spread of the disease.

The Fed has also been conducting repo operations in recent months,  designed to preserve liquidity in short-term bank-to-bank lending markets.  Those operations have seen the Fed’s balance sheet balloon to levels not seen since the height of the global financial crisis from 2008-2010.

Yields on the 10-year treasury note fell to 0.57% Monday, with even the 30-year bond yielding less than 1% for the first time ever.

Join Jim Cramer's special Action Alerts PLUS members-only call Thursday to prepare your investment strategy during the economic fallout from the coronavirus and as oil prices fall amid a price war.