All in all, this new FSR underlines three main aspects with respect to financing the economy: –  The regulatory drivers have and will continue to have an important bearing on market participants’ behavior and strategies. –  The transition towards a more balanced financing pattern needs to be supported by public intervention. –  There is still a lot to do in order to drain resources more effectively and ensure a sufficient flow of long-term financing, which is a prerequisite for recovery and growth. Before we get into the discussion, let me briefly share with you some personal thoughts in this regard. In my view, the challenges to finance the economy are mainly two-fold: –  On the one hand, some segments of the economy, namely SMEs and infrastructures, rely heavily on bank-financing, due to the existence of high fixed costs and significant information asymmetries. Indeed, banks are better equipped to assess the credit-worthiness of such counterparties or projects. Facing this situation requires to unlock bank lending. –  On the other hand, and that concerns the economy as a whole, it is essential to foster the development of a market financing as a complement to bank financing. Although the process has already started, the speed and extent of the shift differs across countries and sectors. The development of a more balanced funding structure is a necessarily long process, which requires a strong commitment and support from public intervention.

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.