The Treasury Department Ready to Increase Investments In Fed Lending Programs

Treasury Secretary Steven Mnuchin said Tuesday he was prepared to provide more money and take more risks to facilitate lending programs being established by the Federal Reserve.



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Congress made $500 billion available to the Treasury Department through the $2 trillion economic-relief package that President Trump signed into law in March. The legislation provided the Treasury with $46 billion to provide direct assistance to airlines and other distressed industries, plus another $454 billion to cover losses in Fed lending programs.

The Fed has launched nine lending programs with Mr. Mnuchin’s approval to support financial markets, businesses, cities and states, and the Treasury Department has provided $195 billion from the economic-relief bill to cover losses in some of those programs.

“I am prepared to allocate the rest of that,” Mr. Mnuchin told lawmakers during a hearing conducted by the Senate Banking Committee via a videoconference Tuesday. “The only reason I have not allocated it fully is we are just starting to get these facilities up and running.”

Lawmakers have pressed Mr. Mnuchin on how much risk the government is willing to take on its investment in the Fed’s lending facilities, and whether he is prepared to lose the money Congress provided to ensure credit is widely available to companies that need it most.

“The answer is absolutely yes,” Mr. Mnuchin said. “We are fully prepared to take losses in certain scenarios on that capital.”

Mr. Mnuchin appeared at the hearing alongside Federal Reserve Chairman Jerome Powell. Lawmakers pressed both men on the need for additional spending to limit the economic damage from the current downturn. Democrats in the House of Representatives narrowly approved a $3 trillion relief package last week with only one Republican voting in favor.







Mr. Mnuchin has said the administration expects economic growth to pick up in the second half of the year, and administration officials are taking a wait-and-see stance regarding additional relief. Mr. Powell in recent weeks has urged Congress and the White House to spend more money to ensure the government’s response to the economic downturn isn’t squandered, and he has said the recovery faces a longer and more uncertain path.

“This is really a question for Congress to weigh,” Mr. Powell said Tuesday.

“There is a growing sense that the recovery may come more slowly than we would like…and that may mean that it’s necessary for us to do more,” Mr. Powell said last week during a moderated discussion online.

Mr. Powell faced questions on when the central bank’s lending programs will be up and running. The Fed has launched several operations to calm short-term funding markets, recycling programs it had used in the 2008 crisis to stabilize financial markets.

But it has unveiled other programs to backstop corporate and municipal bond markets and to lend directly to small and midsize businesses that are taking more time to put into operation.

The Fed began purchasing exchange-traded funds of corporate debt last week through one of these new programs, and it rolled out application materials Monday for state and local-government borrowers that plan to issue debt of up to three years through the central bank’s Municipal Liquidity Facility.

By simply announcing its intention to backstop corporate-debt markets, the Fed has made it possible for companies to borrow more money from private investors without the Fed’s buying a single security.

Still, the Fed’s ability to follow through on those programs will be closely watched by markets and lawmakers alike.



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In one particularly novel operation, called the Main Street Lending Program, the central bank will lend directly to middle-market firms that are too large for aid from the Small Business Administration and too small to borrow in Wall Street debt markets.

The Fed has already adjusted the terms of its loan programs several times, and Mr. Powell said the central bank would continue to adjust the terms for those operations “as we learn more.”

Mr. Powell said he expected that program would be ready to start lending by the end of the month or in the first week of June.

While some lawmakers have pushed the Fed to ease terms on certain lending operations, others have warned against the central bank’s expanding eligibility criteria to benefit sectors of the economy they think shouldn’t be helped by the Fed, such as oil-and-gas exploration and drilling.

Mr. Mnuchin faced questions on the Treasury Department’s role in administering the Paycheck Protection Program, which has provided $530 billion in emergency small-business loans. The program got off to a bumpy start and has faced criticism over loans that went to large public companies, and rules limiting how small firms may spend the money to qualify for loan forgiveness.



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