U.S. Treasury allows several Fed emergency lending facilities to expire Dec. 31

Will the U.S. financial markets trigger a massive selloff on Friday?

After the Treasury Department approved allowing several of the Federal Reserve’s emergency lending facilities expire on December 31, the stock market could bleed red ink.

Writing in a letter on Thursday night, Treasury Secretary Steven Mnuchin confirmed that the Fed’s emergency lending facilities would be allowed to expire at year’s end. However, Mnuchin approved 90-day extension to three programs that support the commercial paper and money markets.

It looks like the Treasury is only allowing it to expire because just $25 billion of the $750 billion had been loaned out. But the Fed disagreed with the measure, arguing that the decision would prevent its ability to support the financial system.

The broader emergency lending facilities total $4.5 trillion.

“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,” the Eccles Building wrote in a letter to the Treasury.

But it is more than likely that Mnuchin or his successor from the Biden administration would agree to revive the emergency lending programs under a new Fed agreement.

At the time of this writing, the leading benchmark indexes were in the red, led by the Dow Jones Industrial Average, which is down more than 200 points.