Main Street lending to begin
Federal Reserve Chair Jerome Powell acknowledged Friday that the Fed faces a major challenge with the launch in the coming days of a program that will lend to companies other than banks for the first time since the Great Depression.
The Fed’s Main Street Lending is geared toward medium-sized companies that are too large for the government’s small business lending program and too small to sell bonds or stock to the public. The individual loans, which could reach $600 billion, will technically be made by banks. But the Fed will buy 85% to 95% of each loan, thereby reducing the risk to banks and freeing them to do more lending.
Powell said that Main Street will make its first loans in a “few days.” He has previously set June 1 as the target, or soon after.
He noted that the complexity of the program goes far beyond the Fed’s usual lending efforts, which typically involve buying bonds. The Main Street program will consist of unique loans to individual businesses.
“It is far and away the biggest challenge of the 11 facilities we have set up,” Powell said.
Speaking in an online questionand-answer session with Alan Blinder, a Princeton economist and former vice chairman of the Fed, Powell also said he worries that a second wave of the coronavirus, perhaps in the fall, would damage consumer confidence and weaken any economic recovery.
For the economy to fully recover, Powell said, Americans must be confident that they can shop, eat at restaurants or visit public places without risking infection. For that reason, he said, tracking the spread of the virus is, if anything, more important than economic data in gauging any recovery.
Addressing the Main Street Lending program, Powell said its primary goal is to help preserve jobs or make it easier for workers to find new ones. Companies with up to 15,000 employees or $5 billion in revenue are eligible.
Yet unlike with the government’s small business lending program, borrowers from Main Street won’t be required to keep their employees. Instead, they will be required to make “commercially reasonable” efforts to hold onto their staffs. That has brought criticism from Sen. Elizabeth Warren, D-Mass., that Powell and Treasury Secretary Steven Mnuchin, who has backed the Main Street effort, haven’t done enough to ensure that the program will in fact protect jobs.
Powell said Friday that the Main Street loans are intended for companies that were healthy before the pandemic hit and that will likely remain viable. But many Fed watchers have argued that the program won’t be very effective unless it is willing to make risky loans that might fail. The Treasury Department has provided $75 billion to offset losses.