Sheila Bair, a top U.S. banking regulator during the 2007-'08 global financial crisis, said the Federal Reserve needs to quickly shift its focus to getting credit flowing to U.S. businesses crippled by the spreading coronavirus and workers losing their jobs.

"They are throwing money in the wrong place," Bair said of an unprecedented move by the Fed on Sunday to slash benchmark rates to zero and start a $700 billion Treasury- and mortgage-bond buying program.

"This isn't a financial crisis - at least not yet," she told MarketWatch on Sunday evening following the Fed's announcement, which drops the target U.S. benchmark rate to zero and aims to shore up liquidity for banks and investors in the $15.6 trillion Treasury and $8.5 trillion agency mortgage bonds markets.

"Lowering interest rates to zero doesn't help if businesses can't pay their loans back and they don't have cash flow," she said. "We need to get help out there, especially to small businesses and people already losing their jobs."

See: The Fed just declared its own national emergency as it aims to shield economy from the coronavirus

Bair was appointed head of the Federal Deposit Insurance Corporation by President George W. Bush in 2006 and served for five years. The agency is a key regulator of U.S. banks that handle consumer deposits. Bair's tenure at the FDIC included overseeing a wave of bank closures in the wake of the financial crisis, as well as sweeping overhauls to the nations' largest lending institutions that also curbed their trading activities.

While preventing the implosion of big banks and the American auto industry were an immediate focus of rescue programs more than a decade ago, relief was less comprehensive and slower to reach U.S. households, which the Brookings Institution estimates led to the loss of 8.7 million jobs, more than 8 million home foreclosures and the shuttering of more than 500 community banks.

ProPublica has kept an ongoing scorecard of which banks and industries were part of the $700-billion bailout in 2008, including how much has been repaid and how much still remains outstanding.

"Forget this 2008 financial crisis playbook," Bair said. "We never focused enough on the real problem in 2008, which was homeowners," she said, adding that she "loves the idea" of recent proposals that aim to get cash straight into the hands of households who are grappling with shuttered schools, businesses and more.

The Centers for Disease Control and Prevention on Sunday said it recommends that all gatherings of 50 people or more be halted throughout the U.S. for the next eight weeks.

Many American cities already have battened down the hatches to avoid spreading the coronavirus, which last week was declared a pandemic and has sickened at least 3,000 people in the U.S.

Read: New York City closes public schools starting Monday to fight coronavirus

What should be done? "They need to get creative," Bair said of government efforts to soften the blow coming to American businesses and households.

To do so, she thinks the Fed should start offering government backstops to help banks lend to industries impacted by the dual hit of a pandemic, such as airlines, and the recent collapse of oil prices, after Saudi Arabia and Russia failed this month to agree on curbs to crude output.

Specifically, the Fed can invoke section 13-3 of the Federal Reserve Act, she said, which covers emergency lending programs, and was revised under the 2010 Dodd-Frank Act to make sure that the government targets relief toward industries, not individual companies, threatened by collapse.

"There is this fiction, that somehow Dodd-Frank stopped them from using 13-3," Bair said. "They can't do Boeing Co. and not the airplane industry," she said of the post-crisis changes. "They can't pick winners or losers."

But the provision does allow the Fed to go beyond Treasury and agency mortgage-bond purchases, meaning they could also roll out corporate bond purchases, if the board of governors agrees to adopt such measures and then gets the sign-off by Treasury Secretary Steven Mnuchin, which Bair expects would happen "in a nanosecond."

"Companies, shame on them, but they have borrowed too much," Bair said, added that's a consequence of having 10 years of ultra-low rates.

"For BBB-rated companies, if those bond markets start collapsing, they're not going to have access to credit, and if they get downgraded [to junk credit status]," that's when it likely hurts the real economy," Bair told MarketWatch.

Read: Wall Street fears 'flashbacks to 2008' with forced selling in $9 trillion U.S. corporate bond market

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