Fed moves to stem panic as stock plunge forces trading halt
The Federal Reserve and other financial regulators moved Monday to stem an investor panic over the spread of the coronavirus and to prevent the fallout from tumbling financial markets from slamming consumers.
Widening worries sent the Dow Jones Industrial Average down nearly 8 percent, or more than 2,000 points – its largest point drop in a single day -- after trading was halted in the morning due to the severity of the decline. A sudden collapse in oil prices contributed to the market carnage as Saudi Arabia and Russia threatened to open their spigots rather than slash oil production.
In an effort to protect consumers, the Fed and other regulators are urging banks to work with people who have mortgages, credit card debt and other loans and are facing the prospect of missing days or weeks of work as the virus spreads and businesses take countermeasures.
“Federal financial institution regulators and state regulators today encouraged financial institutions to meet the financial needs of customers and members affected by the coronavirus,” the agencies said in a statement, assuring banks and credit unions that they won’t be faulted by their examiners for helping out borrowers.
The New York Fed also announced that it is expanding the amount of cash that it’s injecting into a central piece of the financial system where banks and other firms get short-term funding. The goal is to avoid an unwanted spike in interest rates that could then feed through to the broader economy.
The Fed said it will increase the cash it’s willing to lend into the market for so-called repurchase agreements, in which there is a temporary exchange of cash for high-quality collateral such as a government bond.
The central bank had already been pumping cash into the so-called repo market as it aims to make sure the money supply is big enough to keep the wheels of the banking system greased; that number will increase to at least $150 billion a day from at least $100 billion through Thursday, the central bank’s powerful New York branch said.
These moves come as rates on Treasuries have plunged to eye-poppingly low levels, as investors seek the safety of U.S. government bonds, and as stocks have experienced astonishing swings from one day to the next.
Trading on stock exchanges was temporarily suspended just minutes after the market opened after a 7 percent drop in the S&P 500 triggered one of the SEC’s market-wide “circuit breakers,” which stop trading for a specified period of time if prices decline by a certain magnitude.
The circuit breaker rules, which were first effective in 2013, contain three different thresholds that stop trading: if S&P 500 index drops by 7, 13, or 20 percent. If the market drops 7 or 13 percent before 3:25 p.m., trading will stop for 15 minutes. After 3:25 p.m., drops in those levels don’t halt market-wide trading. But a 20 percent market decline at any time of day halts trading for the rest of the day market-wide.
Kellie Mejdrich contributed to this report.
