Fed faces bipartisan pressure to speed up, expand emergency loans

The Federal Reserve is facing bipartisan pressure to quickly launch and expand two emergency lending programs designed to help businesses and local governments avoid bankruptcy during the pandemic-driven economic downturn.

During a Tuesday hearing, members of the Senate Banking Committee urged the Fed’s top regulatory official, Randal Quarles, to roll out the Main Street Lending Program and Municipal Liquidity Facility as soon as possible, with access to a wider array of potential borrowers.

The bipartisan $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law on March 27 ordered the Fed to create two unprecedented emergency lending facilities for local governments and small businesses, backstopped with up to $454 billion in credit protection from the Treasury Department.

The central bank has already opened several other emergency loan programs and has purchased more than $4 trillion in bonds and securities to keep credit flowing through the financial system, programs first deployed during the Great Recession.

“The Main Street and the municipal facility are innovations for this crisis, and it’s important that we do the complicated technical work to ensure that they can be rolled out effectively as well as quickly,” said Quarles, the Fed’s vice chairman of supervision.

“I don’t think we’re looking at months, but it would be premature for me to say exactly how many weeks it would be before they will be operational,” he said.

Fed Chairman Jerome Powell and central bank officials have urged lawmakers to unleash the fiscal power of the U.S. government to defeat the pandemic and sustain the economy. House Democrats on Tuesday proposed a sweeping $3 trillion follow-up to the CARES Act, which was quickly dismissed by Republicans reluctant to approve additional emergency aid.

Amid the partisan battle over another economic rescue bill, lawmakers are eager for the bank to launch each program with more than a month of economic damage sustained since the Fed first outlined its plans for the two new lending facilities.

“I’m very interested and, frankly, concerned about how quickly we can get the Main Street facility and the municipal facility active and operating,” said Sen. Mike Crapo (R-Idaho), the Banking Committee chairman.

The Fed announced in April that it would purchase up to $1.1 trillion in debt through each facility to help creditworthy businesses, state governments and county governments stay afloat until the economy recovers. The central bank had previously balked at direct aid to nonfinancial businesses, but is set to finance trillions in relief across nearly every sector of the economy amid a historic downturn.

While the Fed has received near unanimous praise from lawmakers and economists for its quick and unparalleled response, some have expressed concerns about the scope of its intervention for small businesses and municipalities.

The Fed on April 27 expanded the Municipal Liquidity Facility to cities with at least 250,000 residents and counties with at least 500,000. The program was previously limited to cities of 1 million residents or more and counties of at least 2 million, which experts warned would cut off some of the municipalities hit hardest by COVID-19.

Several senators on Tuesday asked Quarles to consider reducing or even scrapping the threshold for the municipal lending program.

Crapo noted that because no Idaho city or county was large enough to qualify for the program, municipalities would have to depend on statewide filings. 

“There are those who are worried about whether that will work well or whether the states will actually do that job well,” Crapo said. “We need to know how we can move seamlessly so the smaller communities can take advantage of this facility.”

Sen. Catherine Cortez Masto (D-Nev.) echoed Crapo’s concerns about smaller localities depending on larger ones to access emergency loans.

“I don’t think we can wait weeks and I think there is a concern by many of us that the money should be allocated as quickly as possible,” she said. 

Quarles countered that expanding the facility to “the vast panoply” of municipalities would “slow things down significantly,” but added that the Fed is “open to seeing how we can improve the administration” of the lending pathways.

Senators also urged the Fed to drop the size requirements for the Main Street facility, expressing concerns that its scope doesn’t align with its name. The program will be open to firms with 15,000 employees or fewer, or with 2019 revenue of no more than $5 billion — both far greater than the federal government’s parameters for a small business.

“If they’re not able to get access to funding because the Federal Reserve has said it’s not good enough to qualify for a loan, that’s a loss for us in Arizona,” said Sen. Kyrsten Sinema (D-Ariz.).

“This is a loss that we can’t write off, and we want to make sure that these mid-sized businesses have access to the liquidity that they need,” she said.

Sen. Thom Tillis (R-N.C.) added that he was concerned about the prospects of businesses that are too small to qualify for Fed emergency loans, but too big to apply for loans through the Small Business Administration’s Paycheck Protection Program (PPP), which cuts off businesses with more than 500 employees.

“We’ve got a bit of a donut hole in the CARES Act,” Tillis said.