Will Congress's coronavirus response watchdog have any teeth?
WASHINGTON — An oversight panel to scrutinize Treasury Department and Federal Reserve lending programs aiding businesses hurt by the coronavirus could create a clash between the legislative and executive branches, observers said.
Members of the Congressional Oversight Commission, created by last month's $2 trillion stimulus bill, are appointed by lawmakers as a watchdog over key areas of the virus response, including the Federal Reserve's emergency lending facilities and Treasury Department loans to sectors hit hard by the pandemic.
While the commission's jurisdiction is not directly tied to the support provided for banks to lend to small businesses, members of the panel and other experts expect banks could be called to testify.
“I imagine that we should be seeking information from anyone who has relevant information,” said Bharat Ramamurti, a former adviser to Sen. Elizabeth Warren, D-Mass., who was appointed to the panel by Senate Minority Leader Chuck Schumer, D-N.Y. “And, yes, that includes the banks and, yes, I think that should include the companies that get money through these lending facilities as well.”
Experts say the bipartisan panel's work will not be easy. Despite backing from congressional leaders, the commission lacks subpoena authority, which could hinder its ability to compel information from the administration on the allocation of roughly $500 billion authorized for emergency lending programs.
Still, the commission is expected to use its bully pulpit to wield influence.
“The panel lacks subpoena authority, but it does enjoy the benefit of a public platform to critique the administration for failing to share information, as well as to comment on perceived issues or failures in implementing the program,” said Preston Burton, a partner at Buckley. “If there is consensus and unanimity of the bipartisan panel, that will carry significant weight with the public and bodies that do enjoy subpoena power.”
Many have compared the commission to the former Congressional Oversight Panel, created in 2008 to scrutinize the Troubled Asset Relief Program, the government's bank bailout in the midst of the mortgage crisis. That panel helped raise the profile of Warren, who chaired it before launching her political career.
The Coronavirus Aid, Relief, and Economic Security Act mandated that congressional leaders appoint five members of the COC to oversee the Fed and Treasury’s implementation of the economic stabilization provisions of the legislation. All but one of the five commissioners have already been chosen.
It is charged with monitoring allotments to the Treasury's Exchange Stabilization Fund. They include nearly $50 billion in Treasury loans, loan guarantees and investments for industries such as air travel and firms critical to national security. The commission will also monitor the more than $450 billion that Congress directed Treasury to invest in the Fed’s emergency lending facilities used to pump more liquidity into the financial system.
“Whenever this much money is spent, there is always an opportunity to significantly raise the profile [of commission members] and establish a clash with the administration,” said Ed Mills, a policy analyst at Raymond James.
Even though the commission is not designed to focus on the Paycheck Protection Program — the small-business lending program facilitated by banks that was drafted in a separated section of the CARES Act — efforts by financial institutions could fall under the panel's purview because of their backing from the Fed.
Rep. French Hill, R-Ark., a member of the House Financial Services Committee who was appointed to the commission by GOP leaders, said decisions by the Fed and Treasury involving banks could be scrutinized by the commission.
“To the extent they delegate some of that responsibility to the commercial banking or investments banking sectors, those decisions and that analysis will be reviewed in sort of the ordinary course of reviewing those transactions,” Hill said.
House Speaker Nancy Pelosi, D-Calif., selected Rep. Donna Shalala, D-Ohio, to sit on the panel. Senate Majority Leader Mitch McConnell, R-Ky., appointed Sen. Pat Toomey, R-Pa. Pelosi, and McConnell will choose the fifth member.
Despite the CARES Act's requirement for the commission to report monthly to Congress, some suspect Treasury may resist requests for information. The Trump administration has already faced criticism for the firing of acting Defense Department Inspector General Glenn Fine, who was being tapped to run the Pandemic Response Accountability Committee, which has authority to oversee the entire CARES Act.
“Look at how the White House and Treasury have completely ignored Congress’s subpoenas,” said a former senior Senate staffer.
Burton said the previous oversight panel scrutinizing the management of TARP ran into resistance trying to get information.
The TARP “panel’s report talks about the lack of transparency from the Treasury at least at the outset, and that was while dealing with prior administrations that were not as resistant to oversight as this one has been in a variety of circumstances,” Burton said.
Treasury Department officials, however, counter that they are committed to transparency in the implementation process. At a White House press briefing earlier this week, Treasury Secretary Steven Mnuchin touted the "independent oversight" included in the bill.
"We had no obligation to do this. We put up ... full transparency on the money that had been sent out on the PPP across states, showing all the big lenders, how it was distributed," Mnuchin said. "So, again, the president and I very much believe in full transparency. We're spending a lot of money, and we want to make sure that it's done effectively and fairly."
A spokesperson for the Fed said the central bank intends to cooperate fully with the oversight panel.
“The Federal Reserve is accountable to the public and Congress and will work with the commission to be transparent about the Fed’s efforts to support the economy during this difficult time,” the spokesperson said.
Hill and Ramamurti said that the size of the stimulus package warrants strict scrutiny.
“Our principle obligation are to the House and Senate to make sure that the Fed and the Treasury that are using an unprecedented amount of public resources ... go about that implementation with adherence to the statute, transparency, and with the best interest of the country and the taxpayers front and center," Hill said. "We’ve never seen an exchange stabilization fund of the amount of $500 billion levered."
Ramamurti agreed that "if you are administering $500 billion of taxpayer money, it’s reasonable to come answer some questions about what you’re doing about it."
But the former Senate staffer said Treasury could stonewall the commission. “Treasury is not going to be very excited about having to answer to a commission. They agreed to it in the bill, I get it. It’s in there. Mnuchin cut the deal. But I can’t imagine they’re going to care all that much about what this commission says or does.”
Still, Ramamurti said he expects the commission will use all possible outlets to obtain information.
“If the Treasury Department decides not to provide that information or isn’t cooperating with the commission, we have to figure out what happens at that point,” Ramamurti said. “I think it’s important that the commission be creative in terms of using every tool available to it to get this information. That for example includes seeking information from companies directly, working with other oversight bodies and try and get access to information that other oversight bodies might have that we don’t.”
While it is still early in the implementation of the CARES Act, Ramamurti said he already has concerns. He said he is worried that there aren’t any strings attached to the loans from the Fed’s facilities, including the Main Street Lending Program — which makes bank loans available to midsize businesses — in terms of limitations on buybacks, dividends and executive compensation for the companies receiving the loans.
“There were certain recommended restrictions in the bill that the Treasury and the Fed have not chosen to adopt,” Ramamurti said. “So again that money is set to go out the door without the types of conditions attached to it that Congress seemed to recommend.”