4 takeaways from Senate grilling of Mnuchin, Powell on relief plans

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WASHINGTON — Democrats on the Senate Banking Committee urged Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin to ensure companies receiving coronavirus relief loans use the funds to pay employees, while Republicans zeroed in on aspects of the Fed's emergency liquidity facilities.

The hearing Tuesday was Powell and Mnuchin's first quarterly update to Congress on the implementation of the Coronavirus Aid, Relief, and Economic Security Act, which was signed into law in March.

Senators grilled Powell and Mnuchin on the deployment of CARES Act funds, while also seeking feedback on potential future measures Congress could take to stabilize the economy in the midst of the pandemic. The hearing came less than a week after House Democrats passed the Health and Economic Recovery Omnibus Emergency Solutions Act, or HEROES Act, without any Republican support.

Democrats on the Banking Committee emphasized the need for additional economic stimulus, while Republicans were hesitant to support more relief until the funds from the CARES Act were fully dispersed.

Here are takeaways from the hearing:

Democrats want corporations to be accountable for spending.

Sen. Sherrod Brown of Ohio, the top Democrat on the committee, and Sen. Elizabeth Warren, D-Mass., pushed Mnuchin to ensure that companies are accountable for how they use CARES Act funds.

“You've set up CARES act programs that will lend trillions of dollars to companies,” Brown told Mnuchin. “Am I right that you are not requiring companies to use the money they borrow to keep their workers on the payroll?"

The thresholds "are established at such a level that many of the small cities and counties across the United States cannot apply for individual loans,” Chairman Mike Crapo, R-Idaho, said of the Municipal Liquidity Facility.
The thresholds "are established at such a level that many of the small cities and counties across the United States cannot apply for individual loans,” Chairman Mike Crapo, R-Idaho, said of the Municipal Liquidity Facility.

Without saying whether companies are required to keep workers on payroll, Mnuchin said the Treasury Department is implementing the CARES Act appropriately.

“I am following what was the exact letter and spirit of the law that we negotiated with you and others on a bipartisan basis,” Mnuchin said. “In some of these facilities, there are specific requirements and I assure you that [Powell] and I are absolutely enforcing those requirements as required in both the literal and spirit of the negotiations.”

Warren further pressed Mnuchin on whether corporations will be criminally charged for misusing CARES Act funds or providing false information on how they are using funds.

“Will you create a certification process that ensures that executives are held personally liable and are subject to criminal penalties if they provide false information or misuse bailout money?” Warren said

Mnuchin said he will review certification processes and noted that programs, including relief to the airline industry “had very specific requirements to keep jobs.”

Powell expects all Fed facilities will be "ready to go" by end of the month.

Powell also provided an update on the much-anticipated Main Street Lending Program, saying it is expected to be propped up before the end of May or early June.

Lawmakers have been pushing for the Fed to move quickly to make the program operational.

“So on Main Street, and frankly on all of the other facilities, we expect all of them to be stood up and ready to go by the end of this month,” Powell said in response to Sen. Pat Toomey, R-Pa., who also sits on the CARES Act congressional oversight panel. “I don't say that it won't be a day or two into June, but that's our expectation. And the funds should be flowing directly after that.”

While the Paycheck Protection Program was intended to help primarily small businesses, the MSLP will be focused on middle-market relief.

Sen. Thom Tillis, R-N.C., said he was concerned that some businesses won’t qualify for loans in any of the programs.

“I have a growing sense that we have a bit of a doughnut hole,” Tillis said. “Some businesses that are not quite right for the Paycheck Protection Program because of their size, they are not quite big enough … to be eligible for the upcoming Main Street lending facilities.”

Mnuchin said the administration is focused on helping as many companies as possible.

“Our objective is to make sure that there are people that don't fall out in between,” Mnuchin said. “So between the PPP, the idle loans, and the Main Street program, it is our objective to try to cover as many of those companies as possible.”

Lawmakers worry certain localities will not have access to Municipal Liquidity Facility.

The Fed’s Municipal Liquidity Facility has sparked bipartisan concerns. Both committee Chairman Mike Crapo, R-Idaho, and Sen. Catherine Cortez Masto, D-Nev., said the population thresholds set by the Fed for cities to qualify have made certain communities ineligible to receive aid.

The thresholds "are established at such a level that many of the small cities and counties across the United States cannot apply for individual loans,” Crapo said in questioning Powell. “You have indicated that it would be contemplated that the states be able to apply for loans for these smaller cities and counties and there's a lot of concern out there about this.”

Cortez Masto echoed Crapo’s sentiment, saying fiscal support for states and local governments is essential.

“That's why funding for our state and local governments is so important,” Cortez Masto said. “And I cannot stress that enough. Not only in the next fiscal package that needs to come in to state and local governments, but you also touched on it, the municipal lending facility. I would like to see more of that available to smaller populated states and local governments.”

Powell said that the Fed is willing to lend to states with the purpose of “downstreaming” the funds to cities and counties.

Senators are split along party lines on the need to provide additional relief.

Democrats argued that Congress must pass additional coronavirus relief. They cited comments Powell made last week in which he called for more fiscal measures and said “the passage of time can turn liquidity problems into solvency problems."

“So Congress needs to think about more than just the national debt right now,” Brown said. “It's less costly to act today to help people than to pay for our failure to act in the future. Is that right, Mr. Chairman?”

But Powell tried to walk back his previous comments to some extent, saying, “This is really a question for Congress to weigh.”

Sen. Bob Menendez, D-N.J., pressed Powell further, asking whether he would support a bipartisan proposal to provide “$500 billion in direct support to our state and local governments.”

Powell would not comment on any specific congressional proposals, but pointed to the work the Fed is doing on the Municipal Liquidity Facility.

On the other hand, Toomey said Congress should wait for all of the funds in the CARES Act to be deployed before passing additional relief.

“While we authorized something on the scale of $3 trillion to round things off, of direct spending and lending and then authorized the Fed to complement that with another roughly $3 trillion, that could be $6 trillion,” Toomey said. “That's like 30% of our entire annual economic output. And in fact, actually more than half of it has not yet been spent or lent. So I think you can make a pretty strong case that before we rush out and do another spending bill, we actually let some of this stuff go to work and understand the consequences of what we've already done.”

This article originally appeared in American Banker.
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CARES Act Coronavirus Liquidity Paycheck Protection Program Federal Reserve Treasury Department Jerome Powell Steven Mnuchin Senate Banking Committee Main Street Lending Program