Fed receives bipartisan critique for stalled Main Street lending

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The Federal Reserve received a bipartisan critique Wednesday from members of a congressional oversight panel who said the central bank has been slow to launch a key emergency lending program for midsize companies.

Rep. French Hill, an Arkansas Republican, and Rep. Donna Shalala, a Florida Democrat, expressed concern that the Main Street Lending Program — which targets companies too large for small business assistance and too small to qualify for corporate lending facilities — was not yet operational.

"I'm disappointed that it's taken as long as it has," Hill said in an interview of the program, which was announced April 9.

The central bank received more than 2,000 comments on the program from April 9 to 30, and then announced that it would be broadened to include more businesses. Fed Chair Jerome Powell says the program will be operational by early June and disputed the notion that the central bank could be moving more quickly.

"We are working literally around the clock and have been for weeks to have this ready," Powell said.

Both the Fed and the Trump administration have projected economic hardship at least through June as the U.S. copes with the coronavirus pandemic. Powell has warned of broad dangers to the economy, saying a recovery would take time and that the country was at risk of long-term economic damage.

Trump's economic advisers say the economy could contract 40% for the second quarter through June. More than 36 million people already have lost their jobs.

The Fed and Congress have pumped trillions of dollars into the economy to stem the damage, but the central bank is still grappling with what Powell has called "complex and challenging" emergency facilities.

"Main Street is in a class by itself," he told senators Tuesday during a virtual hearing. "These are small and medium-sized businesses. They live in a world of bank lending. That's a world of negotiated documents. We're trying to enter that world and make loans to qualifying buyers."

'Commercially reasonable'

The Main Street lending facility is also a key area of interest for the oversight panel. Carlos Condarco, a spokesman for Shalala, said the Florida Democrat wants to make sure the terms of the lending programs benefit the small and medium-sized businesses most in need.

The Fed, when it expanded the facility, said participants should make "commercially reasonable" efforts to refrain from laying off workers.

Lawmakers say that while Congress did not place restrictions on retaining payroll levels in exchange for federal support that comes from the central bank, the Fed should still require it to follow the spirit of the law.

Hill said he plans to ask Treasury and Fed officials what they mean by "commercially reasonable."

"The principal mission of the Main Street Lending Program is to bridge companies cash-flow needs across this coronavirus impact on the economy and keep as many Americans employed as possible," Hill said in the interview. "That's certainly the full intent of not only the the law but also the regulations."

Bloomberg News
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