Fed official defends slow start to Main Street loan programme

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Eric Rosengren told a congressional oversight panel that more up-to-date information showed that 54 loans were being considered totalling a potential $530 million.
Eric Rosengren told a congressional oversight panel that more up-to-date information showed that 54 loans were being considered totalling a potential $530 million.

Washington - Central bank's lending much more complex than its usual support, which involves buying securities in open trading in bond market

By AP

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Published: Sat 8 Aug 2020, 4:53 PM

Last updated: Sat 8 Aug 2020, 6:58 PM

A top Federal Reserve official defended the central bank's efforts to launch a Main Street lending programme and said the small number of loans approved so far would likely expand by a significant amount in coming months, especially if the pandemic worsens.
While the Fed reported last week that the programme has only made eight loans so far totalling $76.9 million, Eric Rosengren, president of the Federal Reserve's regional bank in Boston, told a congressional oversight panel that more up-to-date information showed that 54 loans were being considered totalling a potential $530 million.
Still, even the larger figures fall far short of the up to $600 billion the Fed has said it is prepared to make available to cash-strapped mid-size companies.
Members of the Congressional Oversight Commission pressed Rosengren, who is in charge of the Main Street programme which is being operated by the Boston Fed, to explain why it has taken so long to make the programme operational and why so few businesses have applied for assistance.
"While all of this money has been sitting on the sidelines... millions of Americans have lost their jobs," said Bharat Ramamurti, a commission member and former aide to Senator Elizabeth Warren. "By any measure, the Main Street programme has been a failure."
Rosengren said that the Fed lending, which is done through buying 95 per cent of a bank loan to a particular business, is much more complex than the Fed's usual support which involves buying securities in open trading in the bond market.
"It takes some time for the banks and the borrowers to get familiar with the programme," Rosengren said, noting that the programme had undergone a number of modifications based on public comments with the aim of making it more attractive to borrowers.
Representative French Hill, a commission member, said he was concerned about the reluctance of many banks to participate and wondered if the programme terms should allow more of a focus on the assets a potential borrower as opposed to the revenue stream of the business.
Rosengren said it was already risky to be making loans in the "middle of a pandemic" and he said if the pandemic flares up again and the economy doesn't do well, then significant losses could occur.
The Treasury Department is providing a backstop of $75 billion to cover initial losses in the programme. Banks make the actual loans but the Fed will buy 95 per cent of the loan from the bank to minimise the risks to banks.
Ramamurti questioned Rosengren about reports that the modifications that had been made included changes that the Trump administration had sought to help the oil and gas industry including an increase in the maximum loan amount.
Rosengren said the internal discussions on changes to the programme did not involve specific industries but rather changes that would improve the overall functioning of the programme. "This is a broad-based programme and it has been a broad-based programme from the start," he said.
Representative Donna Shalala questioned why the minimum loan amount was set at $250,000, suggesting that was too high and that a minimum amount of $50,000 might be more appropriate.
Rosengren explained that the widely popular Paycheck Protection Programme had been designed to help small businesses by providing loans that would turn into grants if the businesses met requirements for keeping workers on the payroll. He said the Main Street programme was aimed at mid-size businesses, those defined as having fewer than 15,000 employees or less than $5 billion in annual revenue.
The size of the loans from the Main Street programme has been set at $250,000 to $300 million.
According to the first batch of data on the programme released on Thursday, the programme had provided just eight loans totalling $76.9 million since the programme began on July 6 with the largest amount a $50 million loan which went to a Mount Pocono, Pennsylvania, casino operator.
The Fed has said it plans to release more data in coming days that will show a pickup in loan activity.


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