Treasury wants CARES Act programs to expire. Fed says not so fast.

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WASHINGTON — Treasury Secretary Steven Mnuchin called on the Federal Reserve Thursday to let several of its emergency lending programs expire at yearend, and return unused funds appropriated by the Coronavirus Aid, Relief and Economic Security Act to backstop the facilities.

But in a statement, the Fed argued for letting the programs continue.

“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,” the central bank said.

In a letter to Powell, Mnuchin said returning the unused money backing credit programs established under the Fed's 13(3) emergency authority “will allow Congress to re-appropriate $455 billion.”

Treasury Secretary Steven Mnuchin said it was legislators’ intention for the Federal Reserve to return unused CARES Act funds by yearend. But Fed Chairman Jerome Powell made remarks earlier this week suggesting that he didn’t believe the Fed should shut down its emergency facilities just yet.
Treasury Secretary Steven Mnuchin said it was legislators’ intention for the Federal Reserve to return unused CARES Act funds by yearend. But Fed Chairman Jerome Powell made remarks earlier this week suggesting that he didn’t believe the Fed should shut down its emergency facilities just yet.

The Fed, along with Treasury, established nearly a dozen emegency lending programs after the onset of the coronavirus to grease the wheels of credit markets and ensure banks were still able to lend to their customers. The programs are largely set to expire at the end of next month, but some have called for the Fed and Treasury to extend them.

If the Fed returns the CARES Act funds, it would shut down the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Term Asset-Backed Loan Facility, the Municipal Liquidity Facility and the Main Street Lending Program on Dec. 31.

Mnuchin said that was legislators' intention.

“I was personally involved in drafting the relevant part of the legislation and believe the congressional intent … was to have the authority to originate new loans or purchase new assets (either directly or indirectly) expire on December 31, 2020,” Mnuchin said.

Mnuchin also asked that the Fed approve a 90-day extension of the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Dealer Credit Facility and the Paycheck Protection Program Liquidity Facility, all of which were funded without CARES Act appropriations.

The move comes after Powell made remarks earlier this week suggesting that he didn’t believe the Fed should shut down its emergency facilities just yet.

“I don’t think the time is yet, or very soon," he said about closing the 13(3) programs at an event hosted by the Bay Area Council.

However, Mnuchin did say he would be open to restarting any of the facilities if the conditions were warranted.

“In the unlikely even that it becomes necessary in the future to reestablish any of these facilities, the Federal Reserve can request approval from the Secretary of the Treasury,” he wrote.

The back and forth between Fed and Treasury comes amid heightened attention to whom President-elect Joe Biden picks to be his Treasury secretary. On Thursday, Biden indicated he was close to announcing his decision. Fed Gov. Lael Brainard is rumored to be among the leading candidates.

“You’ll soon hear my choice for Treasury. I’ve made that decision, we’ve made that decision, and you’ll hear that either just before or just after Thanksgiving,” Biden said. “You’ll find it is someone who I think will be accepted by all elements of the Democratic party, the progressive to moderate coalitions.”

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CARES Act Federal Reserve Treasury Department Steven Mnuchin
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