New Paper on Financial Response to the Covid-19 Pandemic

August 7, 2020

The Center on Finance, Law & Policy happily announces a new paper by Dean of the Gerald R. Ford School of Public Policy Michael Barr, Harvard Law School professor Howell E. Jackson and Margaret E. Tahyar of Davis Polk & Wardwell LLP. The Financial Response to the COVID-19 Pandemic explores the economic impact of the COVID-19 pandemic, outlining major fiscal responses, and looking at key similarities and differences between this moment and other pivotal economic moments such as the Financial Crisis of 2008.

"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."