The Federal Reserve's authority to establish emergency-lending programs has emerged as a late sticking point in negotiations on the latest Covid relief package wsj.com/articles/covid…
Sen. Pat Toomey (R., Pa.) wants language included that would bar the Fed from using that authority to start any program "that is similar to any program" established in March and April using funds from the Cares Act
Earlier, he sought to rescind $429 billion in funds Congress approved earlier this year for the Treasury to backstop these programs.
The latest language would go one step further by preventing a future Treasury secretary or Fed chair from starting new programs w/out legislation
The latest language would go one step further by preventing a future Treasury secretary or Fed chair from starting new programs w/out legislation
Currently, the Fed and Treasury secretary can jointly agree to start any emergency lending program if they cite "unusual and exigent circumstances"
Because the Fed doesn't believe it can sustain capital losses, it usually seeks indemnification from the Treasury for riskier loans
Because the Fed doesn't believe it can sustain capital losses, it usually seeks indemnification from the Treasury for riskier loans
On March 23, Mnuchin provided such indemnification when the Fed launched a corporate lending backstop and a separate securities-market backstop called TALF supported with money from the Exchange Stabilization Fund
Markets rebounded. A few days later, Congress approved the Cares Act, which turbocharged these programs by offering far more money—hundreds of billions instead of tens of billions—to cover losses.
Fast forward to November. When Mnuchin said he wouldn't reauthorize the programs because he believed it went against the spirit of the law, he said the Fed and the Treasury could still restart them if things got dicey again using ESF funds.
Powell has repeatedly said the same, possibly an effort to downplay any market angst about any earlier-than-anticipated termination of these backstops, which have been lightly used (with one exception).
Meantime a legal consensus has pushed back on Mnuchin/Toomey's interpretation of Cares Act.
Even if some lawmakers intended these programs to end on Dec. 31, the CRS report, the former Fed general counsel and others have said that's not what the law says wsj.com/articles/over-…
Even if some lawmakers intended these programs to end on Dec. 31, the CRS report, the former Fed general counsel and others have said that's not what the law says wsj.com/articles/over-…
Toomey's overarching point is this: These programs are fiscal policy, and absent an obvious market meltdown, fiscal policy tools should reside with Congress.
He says he worries the Biden administration will morph the programs to do things that Mnuchin may have resisted.
He says he worries the Biden administration will morph the programs to do things that Mnuchin may have resisted.
Democrats say Republicans are trying to sabotage or limit the Biden administration's ability to use these tools.
And they are also calling a process foul, as this really wasn't part of the original relief-bill negotiation:
And they are also calling a process foul, as this really wasn't part of the original relief-bill negotiation:
https://twitter.com/brianschatz/status/1339940634837303298
One impact of the Treasury's decision to terminate these lending programs can be seen as borrowers and banks race to close loans through the Main Street Lending Program, set up for midsize firms, small businesses and nonprofits.
The Boston Fed has accepted $12 billion in loans, up from less than $7 billion at the end of November. There are an additional 434 loans in queue.
This means the program will have done more business in the first two weeks of December than it did in its first three months.
This means the program will have done more business in the first two weeks of December than it did in its first three months.
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