Oversight Member Blasts the Fed’s Efforts to Rescue Main Street

“This program is designed for a business that had a disruption in short-term credit, that was in good shape prior to the crisis and who, after the pandemic subsides, would be able to be a viable business,” Eric Rosengren, president of the Federal Reserve Bank of Boston, said at Friday’s hearing.

Mr. Rosengren’s central bank branch is running the initiative. He said that while about $100 million in loans had been settled as of Tuesday, the number had increased to $189 million by Thursday night and that more than $600 million in total were somewhere in the process.

“We actually have seen significant pickup recently,” Mr. Rosengren said.

The program ran into problems from the start. Both Republican and Democrat lawmakers have repeatedly raised concerns about how Main Street was designed, worrying that it would not get money into the hands of companies that need it.

Loans must be for at least $250,000 and cannot go to highly indebted companies. The Fed doesn’t make the loans itself — banks do. The problem is that banks have been reluctant to participate.

The way Main Street works, the Fed agrees to buy 95 percent of any loan that banks originate through the program. That means the banks keep some exposure to loans that might go bad, yet get only a small piece of loans that might prove more profitable, plus fees. That approach has led to questions from many lawmakers, not just those on the oversight commission.

“Many banks seem disinterested in the program because they either wish to retain more than 5 percent of a profitable loan or they have no interest in retaining any stake at all in an unprofitable loan,” a group of four Republican senators, led by Kelly Loeffler of Georgia, wrote in a letter on Tuesday to the Fed chair, Jerome H. Powell, and Treasury Secretary Steven Mnuchin.

The senators recommended reducing the minimum loan size and increasing the debt-to-earnings ratio allowed for borrowers. They also want the Fed and the Treasury to eliminate the loan stake that banks must retain, or promise that taxpayers will take the earliest losses on bad loans rather than sharing those losses evenly with banks.

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