[Senate Hearing 116-411]
[From the U.S. Government Publishing Office]
S. Hrg. 116-411
THE QUARTERLY CARES ACT REPORT TO CONGRESS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING TESTIMONY FROM THE SECRETARY OF THE TREASURY AND THE CHAIRMAN
OF THE FEDERAL RESERVE, AS REQUIRED UNDER TITLE IV OF THE CARES ACT
__________
SEPTEMBER 24, 2020
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
43-349 PDF WASHINGTON : 2022
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania JACK REED, Rhode Island
TIM SCOTT, South Carolina ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska JON TESTER, Montana
TOM COTTON, Arkansas MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
MARTHA McSALLY, Arizona DOUG JONES, Alabama
JERRY MORAN, Kansas TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota KYRSTEN SINEMA, Arizona
Gregg Richard, Staff Director
Laura Swanson, Democratic Staff Director
Catherine Fuchs, Counsel
Brandon Beall, Professional Staff Member
Tanya Otsuka, Democratic Counsel
Corey Frayer, Democratic Professional Staff Member
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
(ii)
C O N T E N T S
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THURSDAY, SEPTEMBER 24, 2020
Page
Opening statement of Chairman Crapo.............................. 1
Prepared statement........................................... 47
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 4
Prepared statement....................................... 48
WITNESSES
Steven T. Mnuchin, Secretary, Department of the Treasury......... 7
Prepared statement........................................... 50
Responses to written questions of:
Senator Brown............................................ 55
Senator Toomey........................................... 56
Senator Tillis........................................... 56
Senator Menendez......................................... 57
Senator Cortez Masto..................................... 58
Senator Jones............................................ 59
Senator Sinema........................................... 61
Jerome H. Powell, Chairman, Board of Governors of the Federal
Reserve System................................................. 8
Prepared statement........................................... 51
Responses to written questions of:
Senator Brown............................................ 62
Senator Toomey........................................... 66
Senator Tillis........................................... 71
Senator Reed............................................. 72
Senator Van Hollen....................................... 73
Senator Cortez Masto..................................... 75
Senator Jones............................................ 76
Senator Sinema........................................... 78
Additional Material Supplied for the Record
Statement of NAFCU, submitted by Chairman Crapo.................. 82
Statement of CUNA, submitted by Chairman Crapo................... 85
Statement of ICSCS, submitted by Chairman Crapo.................. 88
COVID-19 Revenue Loss Dashboard Data, submitted by Senator Jones. 92
Statements of South Dakota bankers, submitted by Senator Rounds.. 95
(iii)
THE QUARTERLY CARES ACT REPORT TO CONGRESS
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THURSDAY, SEPTEMBER 24, 2020
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., in room SD-106, Dirksen
Senate Office Building, and by videoconference, Hon. Mike
Crapo, Chairman of the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. This hearing will come to order.
Today's hearing is a hybrid format, and the hearing room
has been configured to maintain the recommended 6-foot social
distancing between Senators, witnesses, and other individuals
in the room necessary to operate the hearing, which we have
kept to a minimum.
For those joining remotely, a few videoconferencing
reminders. Once you start speaking, there will be a slight
delay before you are displayed on the screen. To minimize
background noise, please use the ``Mute'' button until it is
your turn to speak or ask questions. If there is a technology
issue, we will move to the next Senator until it is resolved.
I again remind all Senators and our witnesses that the 5-
minute clock still applies, and both of you who are remote
should all have a box on your screen labeled ``Clock'' that
will show how much time is remaining. We will try to give you a
gavel reminder when your time is almost expired.
To simplify the speaking order process, Senator Brown and I
have again agreed to go by seniority for this hearing.
With that, I welcome our witnesses to this hearing: the
Honorable Steven T. Mnuchin, Secretary of the Department of
Treasury; and the Honorable Jerome H. Powell, Chairman of the
Board of Governors of the Federal Reserve System. Welcome to
both of you.
Today's witnesses will provide testimony as required under
Title IV of the CARES Act.
Congress has appropriated nearly $3 trillion to protect,
strengthen, and support Americans, to fight the pandemic, and
also to stabilize the infrastructure of our economic system.
Title IV of the CARES Act provided a $454 billion infusion
into the Exchange Stabilization Fund to support the Federal
Reserve's 13(3) emergency lending programs and facilities that
facilitate liquidity in the marketplace and support eligible
businesses, States, municipalities, and tribes.
So far, approximately $195 billion of funds under Title IV
of the CARES Act have been leveraged to provide trillions of
dollars in liquidity back into the markets, supporting credit
flow and helping to stabilize the economy through the Primary
Market and Secondary Market Corporate Credit Facilities, the
Term Asset-Backed Securities Loan Facility, the Main Street
Lending Program, and the Municipal Liquidity Facility.
That leaves around $250 billion in funding remaining under
Title IV of the CARES Act.
There has been significant interest in exploring ways that
the Main Street Lending Program, which offers financial support
to smaller and medium-sized businesses and nonprofits, can be
improved to expand its access and utilization.
Earlier this month, the Banking Committee held a hearing on
the status of 13(3) facilities where witnesses made the case
for and provided recommendations to change the terms of the
Main Street Lending Program to broaden its access and use and
to address commercial real estate markets.
In that hearing, Hal Scott, president of the Committee on
Capital Markets Regulation, shared his view that, `` . . .
small and medium-sized businesses will need financial support
for several years to recover from the impact of the COVID-19
pandemic.''
He continued, ``While our economy is improving, given the
depth to which it fell, there is still a long way to go. Small
business revenues continue to be well below prepandemic levels,
and the recovery has stalled since July. A key part of this
financial support should come from the Main Street Program
authorized by the CARES Act.''
In that same hearing, Jeff DeBoer, president and CEO of the
Real Estate Roundtable, painted a bleak picture of the
condition of the commercial real estate market.
He said, `` . . . it is impacting their ability to meet
their debt service obligations, which increases pressure on
financial institutions, pension fund investors, and others.''
And he said, `` . . . it is pushing property values down to
the detriment of local governments. It is causing much stress
in pools for commercial mortgage-backed securities, and it is
threatening to result in countless commercial property
foreclosures. The situation must be addressed.''
In July, I sent a letter to each of you, Secretary Mnuchin
and Chairman Powell, urging you to expand access to the Main
Street Lending Program, including by setting up an asset-based
lending program and addressing the commercial real estate
market.
In addition to expanding the Main Street Lending Program,
there has been meaningful interest in opportunities to allocate
remaining CARES Act funds.
In August, House Financial Services Committee Ranking
Member McHenry and I sent a letter to each of you urging you to
implement the remaining funds under Title IV to work to the
fullest extent, including by expanding the Main Street Lending
Program, to further support Main Street businesses, their
workers, and the American economy.
The Federal Reserve's 13(3) facilities play a critical role
in strengthening the economic recovery.
It is important to continually assess what areas of the
economy and financial markets continue to be in need of support
and identify options for providing additional needed support,
whether through expanding existing facilities or creating new
facilities.
In July, I sent a letter to the Federal banking regulators
urging each of them to extend and expand critical CARES Act
relief where there is discretion, including relief for the
Community Bank Leverage Ratio to at least December 31, 2021;
the Troubled Debt Restructurings to at least January 1, 2022;
and the Current Expected Credit Losses, or CECL, to at least
January 1, 2023.
Since that letter, I have heard additional concerns from
both banks and credit unions.
Not only have banks and credit unions experienced a
significant inflow of deposits during this pandemic, but
Congress also has tasked them with supporting the economy,
particularly through the Paycheck Protection Program.
Their role and these unique circumstances threaten to cause
key regulatory thresholds to be breached and a ratcheting up of
regulation that would otherwise not occur that could keep them
on the sidelines.
The regulatory framework should account for these unique
circumstances and enable banks and credit unions to continue
supporting the recovery.
Title IV also contains robust oversight provisions.
Section 4026 is what brings us here today, and it also
established the Congressional Oversight Commission, which has
held two public hearings and issued four reports to date, and
the Special Inspector General for Pandemic Recovery, who has,
to date, issued one report and continues his important work.
During today's hearing, I look forward to hearing how the
financial resources provided under the CARES Act have benefited
the American people and economy; an update on the status of the
13(3) emergency facilities, including an assessment of the
opportunities for and need to expand the Main Street Lending
Program; steps the Fed and Treasury have taken and will
continue to take to provide transparency into the loans, loan
guarantees, and other investments under the CARES Act;
opportunities to utilize any remaining funds of the CARES Act
to provide financial support and additional liquidity to the
economy; and opportunities to tailor the regulatory framework
to account for the unique circumstances of the pandemic and
role of the financial institutions, and whether congressional
action is needed.
Although there have been positive economic signs in recent
months, Americans are continuing to still struggle with and
feel the effects of the COVID-19 pandemic and still need
relief.
Unfortunately, Republicans' repeated efforts to deliver
targeted relief in areas where we can agree has been rebuffed
by the Democrats.
Negotiating toward a realistic package that can actually
get passed and signed into law would best serve the American
people during this difficult time.
I appreciate the work of both Secretary Mnuchin and
Chairman Powell in response to this horrible pandemic to
support financial markets, businesses, and the economy.
Thank you again to each of you for joining the Committee
today.
Senator Brown, are you with us?
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. I am. Mr. Chairman, thank you. It is a
pleasure to be here again. While I am disappointed this hearing
was not held fully remote, I am glad to see masks in the
hearing room. Chair Powell, I want to thank you for your
leadership in calling for a national mask mandate--something no
other Republican I am aware of has done. I know many of my
colleagues, Republicans and Democrats, cringe when they see
these Trump rallies, when they see people packed together,
shouting, not wearing masks. We should be trying--elected
officials from the President to the rest of us, should be
trying to stop this virus, not spread it.
Today there are more people out of work than there were
during the 2008 financial crisis. But you would not know it
from the way President Trump and Secretary Mnuchin act, as if
we are through the crisis and well on the road to recovery.
That is what happens when you measure the health of the economy
only through the stock market.
There continue to be about 1,000 deaths per day from the
coronavirus. That does not show up in the corporate quarterly
earnings reports, apparently. In 22 States, coronavirus cases
are surging rather than receding, and scientists and public
health experts predict it will only get worse as fall and
winter begin.
Families are under unbearable stress. Most of my colleagues
know that. Most of you have children and grandchildren, trying
to either educate their kids at home, or worrying as schools
open without sufficient plans to protect children and teachers
and cafeteria workers and security guards and custodians. That
does not even include our sons and daughters and the risk they
face at colleges and universities.
But you would not know any of that if you only looked at
corporate profit forecasts.
The President and this Administration continue to act like
everything is business as usual--because, for them, it is.
The coronavirus is not really affecting them or their
wealthy friends or their comfortable jobs. CEOs are not the
people working the cash registers or cleaning hospital beds.
They are not risking their lives every day to keep food on the
table. Most CEOs do not live in the neighborhoods where black
and minority-owned restaurants and businesses are shutting
down.
Think for a moment, all of us should think for a moment, of
the anxiety of an essential worker, the stress she faces. Think
about coming home at night and worried you might have picked up
the virus at work, and you might be exposing your children and
your family.
Cleveland is always a pretty good barometer of where the
country is heading.
Long before the Great Recession, our trade and tax policy
essentially abandoned the industrial Midwest. Communities
watched factory after factory close, with no plan to rebuild
our local economies. Entire neighborhoods and entire towns
hollowed out. My Zip code, 44105 in Cleveland, had the most
foreclosures in the United States at the beginning of 2007. By
the next year, thousands of cities across the country were
suffering; millions of families lost their homes. The story of
our Zip code became the story of the whole country, because the
Government took care of Wall Street, it took care of the
biggest banks; it failed to take care of everybody else.
Just 10 years later, we have yet another crisis where
Cleveland is a harbinger of what is happening across the
country. ProPublica illustrated it pretty well recently. They
covered a big company called ``TransDigm'' that has offices in
downtown Cleveland. TransDigm has gotten plenty of help from
the taxpayers to get through this pandemic. The company is
borrowing money at record low interest rates; it is collecting
yet more tax breaks, while at the same time it is laying off
its workers. Three thousand workers in Cleveland are going to
lose their jobs during the pandemic, while the company's
executives keep making money. The CEO of TransDigm, the
chairman, made at last count $60 million a year.
And this is happening all around the country. Government
help is readily available for big corporations, while small
businesses struggle to survive and workers are on their own.
Millions have lost their jobs. At the beginning of August,
600,000 workers in my State, millions across the country lost
their $600 a week unemployment insurance payment because this
President and my Republican colleagues allowed it to expire.
That $600 a week kept more than 12 million people out of
poverty.
What are these families to do? How are they going to make
rent or their mortgage payment on October 1st? You cannot tell
them, ``Oh, just go out and get a job.'' There are no jobs
because the President has not controlled the virus.
Millions of people are stuck inside their homes and are
separated from loved ones to stay safe, trying to avoid
contracting this disease. Black and brown communities,
including Native American tribes, have been hit the hardest by
the pandemic, but still do not have equal access to the Federal
Reserve lending facilities or PPP loans.
We know that it would not have been this bad if back in
February and March the President of the United States had done
his job. We all know that, Republicans and Democrats alike. We
were not shocked by the quotations of the President and the
discussion of the President when he talked to the Washington
Post reporter. But imagine if the President, instead of lying
to us, had treated the American people like adults and leveled
with us.
Imagine if he had worn a mask, the President had worn a
mask, and practiced social distancing. Imagine if he had had a
real plan to mobilize all of America's vast ingenuity to scale
up production of tests and contact tracing and personal
protective equipment.
More small businesses would be open right now. Our children
would be back in school safely, or almost all of them. Workers
would still have their jobs, and tens and tens and tens of
thousands of parents and grandparents would still be alive. We
know that.
And now Americans are watching the stock market surge and
their President and his economic advisers saying the economy is
great. They are wondering what great economy they are talking
about.
The Ohioans I talk to, and anyone who actually understands
economics, know workers are the foundation of our economy. They
know all too well what happens when you let Wall Street run
things and ignore Main Streets across the country.
Ohioans have watched for decades as factories closed,
investment dried up, and storefronts were boarded over in
communities that once were thriving. They know what it is like
to wake up one day and realize the only jobs to be had are at a
big-box chain for rock-bottom wages, with no health care, no
paid sick days, and no power over your schedule.
Those Ohio workers know what it is like to be treated as
expendable by large corporations and, too often, by this
Government.
And remember, as Ohio goes, so goes the Nation. Americans
are waking up and realizing they have a President who thinks
much of the country is expendable.
I know not everyone in Government feels that way. The
Chairman of the Fed has said over and over that we need more
actions from Congress--more money to unemployed workers, more
money for schools, more money to help families with their rent
or mortgage. In short, we need the Government to actually lead
and use our country's vast resources to avoid a catastrophic
recession.
In our last hearing in this Committee, all of the expert
witnesses, the one chosen by the minority and the two chosen by
the majority, they all agreed on one thing: people need their
Government to actually step in to support our families,
something the Senate majority has failed to do.
It seems the only people who are not getting this message
that we need Government to step up in a big way for unemployed
workers, for emergency rental assistance, reopen our schools
safely, for local governments, the Postal Service, the
elections. It seems the only people who are not getting that
message are President Trump, Secretary Mnuchin--sitting in
front of us today--and Republican Senators scattered around the
room.
It is not as if Republicans are not capable of taking
action. Mitch McConnell moves heaven and earth to do huge
favors for big corporations.
Look at the tax giveaway. We spent $2 trillion dollars
making the richest people in our country richer. The President
promised he would grow the economy; he promised it would pay
for itself. Not even close. He promised it would mean workers
got a $4,000 raise. None of that happened.
It was incredibly unpopular, but McConnell got all of his
Republican Senators, as he always does, to vote for it. Trump
wanted it, then McConnell wants it, then the entire Senate
Republican caucus wants it.
Senator McConnell has made sure Trump's corporate judges
are approved. He has bent over backwards to stack the Supreme
Court that will gut the Affordable Care Act, rip away
protections for preexisting conditions--almost half the people
in my State have preexisting conditions--and always side with
corporations over workers.
Now we know he is even willing to reverse his own position
to confirm yet another Supreme Court Justice.
When it comes to doing the bidding of Wall Street and the
wealthy, Mitch McConnell can whip the Senate into action. He
thinks everything else can wait.
Most Americans cannot afford, Mr. Chairman, to wait any
longer. We are up against a global health crisis that will
spiral into a global economic crisis unless we act now. We face
a challenge that requires this Government to be at its best, to
work together to do big things.
We need an economic rescue package for everyone, help to
keep families in their homes, and to protect workers at their
jobs, help for seniors and veterans and students who are at
risk, give them help. We need it fast.
Democrats are ready to meet this moment. House Democrats
passed the HEROES Act 5 months ago. President Trump and Senate
Republicans move heaven and earth to help Wall Street and their
wealthy friends. When will they be ready to do the same for
everyone else?
Chairman Crapo. We will now move to the testimony of our
witnesses. Secretary Mnuchin, you may go first. Please proceed.
Secretary Mnuchin. Can you hear me, Chairman Crapo?
Chairman Crapo. Yes, it is on now.
STATEMENT OF STEVEN T. MNUCHIN, SECRETARY, DEPARTMENT OF THE
TREASURY
Secretary Mnuchin. Chairman Crapo, Ranking Member Brown,
and Members of the Committee, I am pleased to join you today to
discuss the critical steps the Department of Treasury and the
Federal Reserve have taken over the last 6 months to provide
economic relief to the American people, as well as to provide
liquidity to the credit markets, business, and households. We
are fully committed to getting every American back to work as
quickly as possible.
America is in the midst of the fastest economic recovery
from any crisis in U.S. history. The August jobs report showed
that the economy has gained back 10.6 million jobs--nearly 50
percent of the jobs lost due to the pandemic. The unemployment
rate reduced to 8.4 percent, a notable achievement considering
some people had expected as high as 25 percent. Thanks to the
programs provided by the CARES Act, we never got close to that
figure.
I believe we will see strong third quarter growth, fueled
by strong retail sales, housing starts, existing home sales,
manufacturing growth, and increased business activity. The Blue
Chip survey projection for third quarter GDP is 24 percent.
The recovery has been strong because the Administration and
Congress worked together on a bipartisan basis to deliver the
largest economic relief package in American history. The
Federal Reserve has been instrumental to the recovery by
implementing 13 unique 13(3) lending facilities.
Economic reopenings, combined with the CARES Act, have
enabled a remarkable economic rebound, but some industries
particularly hard hit by the pandemic do require more relief.
The President and I remain committed to providing support
for American workers and business. We continue to work with
Congress on a bipartisan basis to pass a Phase IV relief
package. I believe a targeted package is still needed, and the
Administration is ready to reach a bipartisan agreement.
I would also encourage the Senate to pass promptly the
bipartisan continuing resolution that was passed in the House.
Treasury has been working hard to implement the CARES Act
with transparency and accountability. We released a significant
amount of information to the public on our website,
Treasury.gov, and USAspending.gov. We have released more
information than is required by the statute. The Federal
Reserve has also posted information on its website regarding
the lending facilities.
We have provided regular updates to Congress, this marking
my seventh appearance before Congress for CARES Act hearings.
Additionally, we are cooperating with various oversight bodies,
including the Inspector General, the Treasury Inspector
General, the Treasury Inspector General for Tax, the new
Congressional Oversight Commission, and the GAO.
We appreciate Congress' interest in these issues and have
devoted significant resources to inquiries. We remain committed
to working with you to accommodate Congress' legislative needs
and the whole-of-Government approach to defeat COVID-19.
I would like to thank the Members of this Committee for
working with us to provide critical economic support to the
American people. Thank you.
Chairman Crapo. Thank you, Mr. Secretary.
Chairman Powell.
STATEMENT OF JEROME H. POWELL, CHAIRMAN, BOARD OF GOVERNORS OF
THE FEDERAL RESERVE SYSTEM
Mr. Powell. Thank you. Chairman Crapo, Ranking Member
Brown, and other Members of the Committee, thank you for the
opportunity to update you on our ongoing measures to address
the hardship wrought by the pandemic. The Federal Reserve,
along with others across Government, is working to alleviate
the economic fallout. We remain committed to using our tools to
do what we can, for as long as it takes, to ensure that the
recovery will be as strong as possible, and to limit lasting
damage to the economy.
Economic activity has picked up from its depressed second
quarter level, when much of the economy was shut down to stem
the spread of the virus. Many economic indicators show marked
improvement. Household spending looks to have recovered about
three-quarters of its earlier decline, likely owing in part to
Federal stimulus payments and expanded unemployment benefits.
The housing sector has rebounded, and business fixed investment
shows signs of improvement. In the labor market, roughly half
of the 22 million payroll jobs that were lost in March and
April have been regained as people return to work. Both
employment and overall economic activity, however, remain well
below their prepandemic levels, and the path ahead continues to
be highly uncertain. The downturn has not fallen equally on all
Americans; those least able to bear the burden have been the
most affected. The rise in joblessness has been especially
severe for lower-wage workers, for women, and for African
Americans and Hispanics. This reversal of economic fortune has
upended many lives and created great uncertainty about the
future.
A full recovery is likely to come only when people are
confident that it is safe to reengage in a broad range of
activities. The path forward will depend on keeping the virus
under control and on policy actions taken at all levels of
Government.
Since mid-March, we have taken forceful action,
implementing a policy of near-zero rates, increasing asset
holdings, and standing up 13 emergency lending facilities. We
took these measures to support broader financial conditions and
more directly support the flow of credit to households,
businesses of all sizes, and State and local governments. Our
actions, taken together, have helped unlock more than $1
trillion of funding, which, in turn, has helped keep
organizations from shuttering, putting them in a better
position to keep workers on and to hire them back as the
economy continues to recover.
The Main Street Lending Program has been of significant
interest to this Committee and to the public. Many of the
businesses affected by the pandemic are smaller firms that rely
on banks for loans rather than public credit markets. Main
Street is designed to facilitate the flow of credit to small
and medium-sized businesses. In establishing the facility, we
conducted extensive outreach, soliciting public comment and
holding in-depth discussions with lenders and borrowers of all
sizes. In response to feedback, we have continued to make
adjustments to Main Street to provide greater support to small
and medium-sized businesses and to nonprofit organizations such
as educational institutions, hospitals, and social service
organizations.
Nearly 600 banks, representing well more than half of the
assets in the banking system, have either completed
registration or are in the process of doing so. About 230 loans
totaling roughly $2 billion are either funded or in the
pipeline. Main Street is intended for businesses that were on a
sound footing prepandemic and that have good longer-term
prospects but have encountered temporary cash-flow problems due
to the pandemic and are not able to get credit on reasonable
terms as a result. Main Street loans may not be the right
solution for some businesses, in part because the CARES Act
states clearly that these loans cannot be forgiven.
Our credit facilities have improved lending conditions
broadly, including for potential Main Street borrowers. The
evidence suggests that most creditworthy small and medium-sized
businesses can currently get loans from private sector
financial institutions.
Many of our programs rely on emergency lending powers that
require the support of the Treasury Department and are
available only in unusual circumstances. By serving as a
backstop to key credit markets, our programs have significantly
increased the extension of credit from private lenders.
However, the facilities are only that--a backstop. They are
designed to support the functioning of private markets, not to
replace them. Moreover, these are lending, not spending powers.
Many borrowers will benefit from these programs, as will the
overall economy, but for others, a loan that could be difficult
to repay might not be the answer. In these cases, direct fiscal
support may be needed.
Our economy will recover fully from this difficult period.
We remain committed to using our full range of tools to support
the economy for as long as is needed.
Thank you.
Chairman Crapo. Thank you, Chairman Powell.
For my first question, I would like you to keep your
answers to this as brief as you possibly can because I want to
get on to a few others. But I want to talk about the need for
additional relief in terms of further coronavirus relief
legislation.
I think both of you have said that what we have done so far
has been very helpful--it is having the results that you have
talked about--but that some more is needed, and I believe both
of you have said that we need to in this next legislation be
more targeted. Is that correct?
Secretary Mnuchin. That is correct.
Chairman Crapo. Chairman Powell, correct?
Mr. Powell. Yes. I would, of course, defer to the Secretary
and to you on the actual contents of the legislation.
Chairman Crapo. Sure, and I understand that.
There is clearly a big gap between the House and the Senate
negotiations and the positions on the next COVID-19 relief.
That being said, there is also a very significant amount of
agreement in specific areas where I believe, if we were to pick
up those specific areas where we do have relief and pass those,
that we could have a significant positive impact. And I would
just like to ask each of you to comment on whether you
believe--and I realize you have a hard time, Mr. Chairman,
talking about what Congress should do. But would it be
beneficial to our relief efforts if we were able to pass at
least the agreements that we have already reached, if we could
take those targeted areas where we do have agreement in
Congress and move forward on them?
Secretary Mnuchin. I believe there is significant
bipartisan support for legislation that supports kids and jobs,
particularly for extending the PPP to those hard-hit industries
that need a second payment. And, yes, I think that would be
very meaningful for the economy broadly and for those most
impacted as a result of COVID.
Chairman Crapo. All right. Thank you.
Do you want to say anything, Mr. Chairman, on that?
Mr. Powell. I just would briefly add that I do think it is
likely that additional fiscal support will be needed, and I
think these are great areas to be looking at.
Chairman Crapo. And in terms of targeting how we approach
this, on July 31st I sent both of you a letter regarding
expanding the Main Street Lending Facility to allow for asset-
based lending and for a commercial real estate facility.
Yesterday I met with many of the restaurant owners from Idaho,
and there is a bill, as you are probably aware, to try to
establish targeted legislation to deal with our restaurant
industry.
You have both responded to me that there is some difficulty
in putting together the kind of relief I requested for asset-
based lending and for the commercial real estate markets. Could
both of you just expand quickly--we have got about a minute
left for each of you on my time--as to what the difficulties
are there and how we may proceed to get some targeted relief in
those areas?
Secretary Mnuchin. Yes, Mr. Chairman, I think as it relates
to commercial real estate, the Chair and I have spent a lot of
time on this, and we are very sympathetic to the issue. There
are structural issues because in many cases these loans are in
commercial mortgage-backed securities that have prepayment
penalties and do not allow for additional funding behind them.
But we continue to look at solutions.
And I would just say as it relates to the restaurant and
broader hospitality industries, we think those industries do
not need more debt. What they need is economic relief because
they are shut down as a result of COVID.
Chairman Crapo. So that would be more of a forgivable loan
or grant program?
Secretary Mnuchin. It would be more PPP money, again,
targeted, in this case very targeted to businesses that have
decreased revenues, would be very important to saving jobs.
Chairman Crapo. And would you both agree that the PPP
program needs to be made even more flexible?
Secretary Mnuchin. I think the good news is there is strong
bipartisan support around both flexibility on PPP but also
additional funds that are highly targeted.
Chairman Crapo. All right. Chairman Powell, do you want to
add anything to that?
Mr. Powell. Not really, no.
Chairman Crapo. All right. Then let me just conclude by
saying I agree with the need to move forward. I think the
comments you have made highlight the fact that there is--you
are the one who is negotiating in most of the arenas here,
Secretary Mnuchin. But you were probably surprised to hear the
attack today that you are not negotiating, that we are not
negotiating. But the fact is there is broad bipartisan support
for many major efforts that need still to be taken, and I
believe that your testimony highlights the fact that that is
something we ought to be able to get going forward on. We ought
to do what we can reach agreement on and get it done soon.
With that, Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
Secretary Mnuchin, President Trump said that, with regard
to the coronavirus, ``I think we did a great job.'' Do you
agree with that? Do you think the President has done a great
job on the coronavirus?
Secretary Mnuchin. I do. I think we have made tremendous
progress on testing. We just committed to a hundred----
Senator Brown. Mr. Secretary, I am sorry to cut you off. I
hope that you and the President do not dislocate your shoulders
by patting yourself on the back saying, ``Good job.'' You know,
we are 4 percent of the world's population; we are 22 percent
of the world's deaths. You bragged about the economy growing so
far--your words. Our unemployment rate is significantly higher
than Germany's, significantly higher than France's, twice what
Taiwan's is, almost three times what South Korea and Japan's
is, much higher than Australia, twice what Britain's rate is,
twice what New Zealand's rate is. I mean, I know you think the
economy is doing well if you are talking to your wealthy
friends on Wall Street, but things are pretty bad for most
working Americans and are going to get worse unless you come up
with a real package. So let me talk about the package that you
just discussed.
Senate Republicans, as you know, offered a paltry, some
call it ``emaciated,'' piecemeal coronavirus bill. You and the
President said you wanted a bigger number than the $500 billion
which Republicans offered. So if you want a bigger deal, they
came up with something so small, which Republicans are opposed
to going higher, Mr. Secretary?
Secretary Mnuchin. Well, let me just clarify. I am not
bragging about the economy. What I have said is we have made a
major recovery from a shutdown, but we have more work to do,
and that is why the President and I want more support. I have
probably spoken to Speaker Pelosi----
Senator Brown. You said it was the fastest economic growth
we have seen.
Secretary Mnuchin. I have probably spoken to Speaker Pelosi
15 or 20 times in the last few days on the CR, and we have
agreed to continue to have discussions about the CARES Act. And
I would encourage--like we had bipartisan support in this
Senate, 96-0 and 100-0. We are very proud, and I specifically
worked with you on many pieces of the legislation.
Senator Brown. But I want to go back. The Senate offered a
paltry $500 billion plan. Economists all over the country
wanted three and four and five times that amount. You and the
President said you want something larger. The President of the
United States typically--and sorry for the cliche--when he
says, ``Jump,'' Mitch McConnell and Senate Republicans usually
say, ``How high?'' But the President of the United States wants
something bigger. You have said you want something bigger. So
what is the hold-up? You have always been really good--look at
the tax cut. A trillion and a half--way more than a $1 trillion
tax cut, and 70 percent of it went to the richest people in the
country. That is what you wanted. That is what your Cabinet
wanted. That is what the President wanted. You got all the
Senate Republicans to go along with that even though it blew a
hole in the Federal budget. You knew all that. So why can't you
get Senate Republicans to go along on a bigger number than the
$500 billion package? What gives here, Mr. Secretary?
Secretary Mnuchin. Again, I would just emphasize--I think
you know this, but this requires 60 votes in the Senate, and I
would encourage the Democrats in the Senate to work with us. I
think there are areas of support. Let us pass things that we
agree on quickly, and we can always come back and do more. So
it is less of the issue of what the absolute number is, and I
am sure you and I agree on there are areas that need to be
passed.
Senator Brown. Mr. Secretary, I know you will say pass
something minimalist that mostly affects Wall Street and does
not much affect workers, and then we will come back. But
considering Senator McConnell, for 4 months after the House
passed a bill that would matter for schools, for local
governments, for unemployed workers, for the Postal Service,
for people who might be evicted, Senator McConnell said there
is no sense of urgency, and all of his spineless Republican
colleagues went along with it. You know that. And you went
along with it. So let me ask it a different way.
Millions of people lost their jobs; another 800,000 workers
filed for unemployment. The $600 unemployment insurance came
every week and kept literally, studies show, 12 million people
out of poverty, that $600 a week. That evaporated in early
August. You know that. It evaporated because the Senate
Republicans refused to act. The House had done it. The Senate
Republicans refused to act. Workers obviously cannot get a loan
or grant through any of the facilities, and I appreciate the
work that the Chair of the Federal Reserve has done. But those
people that lost their $600 that could face foreclosure, what
do you suggest they do? What do you suggest those people who
lost their $600 do if they do not have the money they need to
buy groceries this week or with October 1 coming they cannot
pay their mortgage or their rent? What are they to do, Mr.
Secretary?
Secretary Mnuchin. Well, I think as you know, because that
expired the President was forced to move forward with Executive
action, so we are still providing those people. And, again, I
would encourage both----
Senator Brown. Well, you are providing----
Secretary Mnuchin. ----the Democrats and the Republicans to
sit down together. There is an agreement on extended
unemployment.
Senator Brown. Mr. Secretary, I am sorry my time has
expired. The President was not forced--the President could have
gotten his Majority Leader, who always does his bidding, and
the Republican caucus to go along with the Democrats to keep
the $600 coming. Do not act like the President was forced to do
something. You simply did not step up for these workers. Six
hundred dollars a week, 600,000 people in my State lost their
unemployment insurance, and essentially you and Senator
McConnell and the President of the United States are simply
saying to those 600,000 Ohioans, ``Sorry, you are on your
own.''
Secretary Mnuchin. I think that is just a gross
misstatement and exaggeration. And, again, if the Democrats are
willing to sit down, I am willing to sit down anytime for
bipartisan legislation in the Senate. Let us pass something
quickly.
Chairman Crapo. And I would just add----
Senator Brown. You could get 47 Democratic votes for $600 a
week this afternoon if you are willing to do it for every one
of those workers. We all know what that means in our States. We
would all vote for it. Bring it forward.
Chairman Crapo. And before we go to Senator Shelby, I will
just add, as the Secretary was saying, this is one of those
areas I was talking about in my questions. We have the ability
to move forward on this if we have a willingness to move
forward on pieces of this plan that we have agreement on.
Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman. First of all, I
believe I can change hopefully the tone and the substance of
where we are today.
Mr. Secretary and Chairman Powell, I want to commend you
for what you have done, the leadership you have done under
difficult, difficult circumstances and what you want to do and
your candor with this Committee about a lot of things.
Mr. Secretary, my first observation is you have talked
about this, and that is the economy. We are all interested in
it. We have seen the unemployment drop and the unemployment go
up. In my State of Alabama, for example, we were in double
digits, and now we are at about 5 percent. We would like to go
to about 3 or 4 percent. We know it takes awhile to do this. It
takes years sometimes. But we have made a lot of recovery
thanks to a lot of the leadership that you two working together
with the financial situation that we face.
Chairman Powell, you not only, you know, run the monetary
system, you are the regulator of our largest banks. Tell us
here today--I asked you this I believe in February here. What
is the basic condition of our banking system from your
perspective? And how does this change in contrast with 2008?
Mr. Powell. I would say it is a completely different and
much better situation than we faced in 2008. So as you know, we
spent a decade working on strengthening capital requirements,
liquidity requirements, better ability to understand and manage
the risks that institutions are running. And I think you see
the results of that now. So our banks so far have really been,
you know, a source of strength. They have been able to absorb
deposits----
Senator Shelby. Considering all the problems that we are
facing right now, they have shown resilience, have they not?
Mr. Powell. They have, they have. Now, of course, it is
early days.
Senator Shelby. Yes, I know.
Mr. Powell. We cannot claim victory, but, yes, so far they
have been a source of strength.
Senator Shelby. You have talked about different views from
the Fed as far as deflation, inflation and so forth and
basically said we need a little inflation, and we do, when we
are trying to deal a recovery. What is your outlook on that?
Because we are dealing with price stability, we are dealing
with the job market, everything that goes with it.
Mr. Powell. Of course, for many years the problem was too
high inflation. I think we can both remember that very well,
those days, and it was very important for the Fed to get high
inflation under control. We did.
Today's challenge is a little bit different. There are
disinflationary pressures widely around the world, and you see
in Europe and in Japan, for example, extremely low interest
rates, very low inflation, and the central bank, because rates
are so low and inflation is so low, the central bank really
does not have as much fire power as it would like to respond.
So we just want inflation to be 2 percent on average, not much
higher. Just 2 percent on average, that is what we want, and
that will give us the ability to have significant ability to
cut rates when the economy turns down.
Senator Shelby. Mr. Secretary, we have made great strides.
You have talked about it. I do not think you were bragging. You
were just stating what is happening here, which we all know.
The data is there, and you have to play with it and face it,
and you are doing a good job there.
How do we move to the next step? Because I believe we are
on the threshold maybe of a robust and sustained economic
recovery that maybe we have not seen. People are saving money.
They are staying home. The retail sales are down, but people
ultimately are going to get out and buy and push this economy,
I think.
What is your belief on all that?
Secretary Mnuchin. I think the progress that we are going
to make over the next few months on testing and vaccines is
going to create tremendous encouragement for people to feel
safe.
Senator Shelby. Confidence. Confidence.
Secretary Mnuchin. Confidence. By the way, I also want to
just personally thank you for your work on the CCR. You have
been instrumental----
Senator Shelby. We worked with you. We want to keep the
Government going at whatever cost, and I think it is important.
You do, too.
Secretary Mnuchin. Thank you. And, again, I would encourage
more targeted relief for businesses, particularly small
businesses that through no fault of their own have been shut
down or have Government restrictions or State restrictions
because of COVID. And I think that we should act quickly
because they need the support now. They do not need the support
next year.
Senator Shelby. Thank you. Thank you both for your service.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you, Senator.
Senator Reed.
Senator Reed. Thank you, Mr. Chairman. And welcome, Mr.
Secretary, and welcome, Chairman Powell. Thank you for your
presence here today.
Chairman Powell, you have indicated that we cannot succeed
economically until we defeat the disease, and you have stressed
the need for social distancing, wearing masks, et cetera. Could
you elaborate on the economic effects of wearing masks and
doing things that are public health?
Mr. Powell. Yes, I would be glad to. So everyone, I think
unanimously, wants to reopen the economy and get back to full
employment as quickly as possible, but doing that is going to
go hand in hand with doing things like wearing masks and
keeping social distancing and that sort of thing because that
is what will help keep the spread of the disease in check, and
that is what will enable more and more parts of the economy to
reopen. And I am thinking particularly of parts of the economy
where there is close personal contact.
So it is very important. In fact, doing those things is
very much aligned with a fast reopening, as far as is
sustainable.
Senator Reed. I find it interesting that your comments are
almost identical to the head of the CDC, the Centers for
Disease Control, and yet they are not being accorded any weight
at all by the President. He effectively is rejecting both
medical advice and economic advice, and I think that is a
phenomenon that is continuing to see us ineffective in dealing
with the disease. I hope it changes.
You also indicated that there are downside risks,
particularly outside of Wall Street on Main Street, situations
where small businesses and their customers, mom-and-pop
landlords, State and local governments. Can you elaborate on
the consequences of continuing to fail to provide real support
for these entities through a stimulus package?
Mr. Powell. Yes. So let me say that I think the CARES Act
provided great support and should get a lot of the credit for
the recovery we have so far, which has been faster and stronger
than most forecasters anticipated, certainly faster and
stronger than I anticipated. And so the risk going forward is
that people now are spending because they have got money in the
bank, even though they are unemployed. They may have saved part
of the checks that they got or the unemployment insurance. The
risk is that they will go through that money ultimately and
have to cut back on spending and maybe lose their home or lose
their lease. And so that is the downside risk of no further
action. We do not see much of that yet, but it could well be
out there in the not-too-distant future.
Senator Reed. Well, with respect to rentals and mortgages,
we know there is a tsunami brewing because through Federal and
local legislation, there has been a ban on eviction and a ban
on foreclosures, but that ban will end one day, and it will
come unless we move in dramatically now and provide resources
to help.
One of the key actors in this whole process is State and
local governments, and in the CARES package, we provided
resources for them. I think they could be used more liberally.
I think the Secretary could by rule expand access and
flexibility, indeed including taking care of lost revenue, and
I hope he can do that.
But the facilities that the Federal Reserve has used are
sort of stopgap measures, and they have not really worked out
very well from the feedback I am getting on the ground. The
Municipal Facilities, for example, I do not think recognize the
fact that most States require legislative approval of a bond
issue and, indeed, municipalities have to go to their voters to
get approval. That is very difficult. With respect to the
nonprofit functions, asking for significant revenue versus
other aspects, it makes it difficult.
Can you comment on these facilities? They seem almost
destined not to work. We need direct grants to the States and
localities. Chairman Powell.
Mr. Powell. These loans cannot replace direct grants at
all. They are really there to provide liquidity and, of course,
State and local governments are generally not allowed to borrow
to fund deficits.
So what has happened is since we announced our facility,
borrowing among State and local governments has been at record
levels, and the rates that they have been borrowing at have
been at record low levels, and that goes right across the yield
curve and right across the rating spectrum.
So I would say that the municipal finance market is now
working pretty well and has accomplished what we can accomplish
as a liquidity provider. We cannot do transfers and, of course,
that is why our facility is structured the way it is.
Senator Reed. Just a final point. It seems that you are
acquiring sort of tests of their assets and the liquidity,
which if they had those assets and liquidity, they would not be
borrowing from you. So I think, again, this is not the right
approach, and there is apparently a lot of money involved here,
but it is not going to get to States and local governments. As
you just said, they need the grants.
Thank you.
Mr. Powell. If I can just say, in the Municipal Liquidity
Facility, we go by the ratings, not by any particular financial
requirements. We have got a transparent set of requirements,
and that is what dictates access.
Chairman Crapo. Thank you.
Senator Toomey.
Senator Toomey. Thanks very much, Mr. Chairman, and Mr.
Secretary and Mr. Chairman, thanks for joining us.
Just as a quick follow-up, I think it is important to keep
some context in mind when we talk about direct grants to State
and local governments. Moody's Analytics estimated that the
grand total of lost revenue and additional expenses incurred by
States and municipalities is going to end up somewhere between
$250 billion and $600 billion, the latter of which is only
likely to occur if there is a very severe, further outbreak of
the coronavirus this fall.
We sent $500 billion to State and local governments with
the last bill, probably, quite possibly already covering the
full amount of the lost revenue and added expenses. Why we
would be talking about sending still more at this point is not
clear to me.
But I want to return our focus to the 13(3) facilities
themselves. I hear a lot of criticism about these facilities
that seems to reflect the view that if the facilities have not
been drawn down to a great degree, then, therefore, that is
evidence that they have failed. And I really think we need to
remember what the purpose was in the first place. The whole
purpose behind setting up these facilities and making them
available was to allow private markets to function again.
Back in March, we had frozen capital markets. We had
inability to access credit. We had the risk of a very
frightening and very, very damaging catastrophe because credit
was not flowing, was not able to flow. And what these programs
were meant to do, in my view, is to get the private markets
functioning again. They were not meant to replace the private
market. They were not meant to systematically bail out
companies or bail out companies at all. They were not meant to
be a substitute for fiscal policy. They were not meant to be
subsidies for business and municipality. They were meant to
stabilize markets and make sure that creditworthy borrowers, be
they corporate of municipal, would be able to access credit.
And when I look at what has happened since then, certainly
whether you are looking at macroeconomic data, which, as the
Treasury Secretary pointed out and the Chairman, I think, also,
has come back faster and more robustly than most of us thought
it would. But even more importantly, when I look at the private
capital markets, they are functioning. In fact, they are
functioning at record levels--record levels of volume of
issuance both in the corporate market and in the municipal,
nearly record low interest rates. And so I think the rational
conclusion to come to here is this has been remarkably
successful. It did exactly what we had hoped.
Now, look, there are some sectors, especially some narrow
categories, where we have still got some problems. Asset-backed
lending we have talked about. But I would like to ask the
Treasury Secretary and the Chairman of the Fed both to just
comment, if you would, on the availability of credit for
creditworthy borrowers. What is it like? What are the capital
markets like? What are the lending markets like? Are
creditworthy borrowers in America able to access credit as a
general matter?
Secretary Mnuchin. Well, I would agree with you, exactly
what you said, and, again, I would just remind people the Chair
and I executed the first two facilities even before the CARES
Act was passed when the markets were literally shut down. These
are emergency facilities. They are not intended to be
subsidies. And the best success is us not having to use them.
So in many cases, the mere announcement and commitments
unlocked the markets. As I have said in the past, companies
like Boeing were able to borrow $25 billion in the private
markets and not have to come to the Government. Many of the
large airlines turned down the loans that we were offering them
for the same reason.
So I think they have been enormously successful, and in the
areas where they have not worked, it is primarily entities that
really need subsidies, and it is not just a lack of financing.
Mr. Powell. I would agree with all of that. We have not
made a single loan to a corporate directly, and yet something
like $1 trillion in financing has happened. So, clearly, for
corporates, the financial market is working. But the same is
also true--I think it is $250 billion in issuance among the
municipals, including some of the ones that accessed our
facility have also been able to access the public market. So
public markets are out there, and they are working, and the
pricing is pretty good. So I do think those two--the market-
based facilities and the earlier ones that we did pre-CARES Act
have all done their jobs pretty well.
Senator Toomey. Thank you, Mr. Chairman.
Chairman Crapo. Thank you, Senator Toomey. I think that is
a very important clarification, and it is appreciated.
Senator Menendez.
[No response.]
Chairman Crapo. If Senator Menendez is not available,
Senator Tester.
Senator Tester. Thank you Mr. Chairman, and I want to thank
Secretary Mnuchin and Chairman Powell for being here today.
This question is for you, Secretary Mnuchin. The Chairman
referred to this hearing a couple of weeks ago when we heard
from three witnesses that had varying views of what needed to
be done to move forward, but they were all in agreement that
what is happening now is insufficient. The $500 billion
Treasury slush fund is not making it to Main Street businesses,
as has already been pointed out. The workers, the families,
those are the folks that need the most assistance right now.
PPP is long gone. Many of the small businesses and their
employees continue to struggle. There has been help for
airlines, which I agree with. But what about the restaurants,
the gyms, the venues, the breweries, distilleries, the seasonal
businesses, and others who are bearing the brunt of this
crisis? The health and economic crisis is still there. These
folks still need our help. And I see a lot of big names when I
look at the disclosures, and those businesses may need support.
But the only Montana lenders that have been able to utilize the
facilities are for PPP, and no--I repeat no--Montana businesses
have benefited from the program.
So my question to you, Secretary Mnuchin, is: What are you
doing to help the real Main Street businesses that are in
distress?
Secretary Mnuchin. Well, let me just first say if this was
a Treasury slush fund that I could use however I want, I would
reallocate it to help those businesses immediately. But,
unfortunately, I need congressional authority. I have
encouraged Congress that we would be willing to give back $200
billion of unspent money to be reappropriated. There is also
$130 billion of unspent money in the PPP. So I would encourage
that we work together on a bipartisan basis to specifically
help the types of small businesses that you are referring to.
Senator Tester. Have you asked for congressional authority
to move that money to Main Street businesses?
Secretary Mnuchin. I have asked for congressional authority
to reallocate that. That is in the most recent proposed
legislation. And I have also repeatedly asked for the PPP to be
reauthorized so we could use the $130 billion that is sitting
there. That will help Main Street businesses.
Senator Tester. Once again, and I say this for the Senators
that are on this call, look, we had a proposal by Senator
McConnell here a week ago that had poison pills in it to
privatize education, which is what DeVos has wanted for a long
time, and to impediments on our legal system. My God, why this
cannot be brought to the floor for the congressional authority
at a minimum makes no sense to me. And I will tell you
Democrats are not holding that up.
Chairman Powell, I have been told that the reason the stock
market looks so good is because the Fed is buying a lot of bad
debt. Could you enlighten me on what kind of bad debt you are
buying and how much money the Fed has put out to buy bad debt?
Mr. Powell. Well, that must be a reference to the Secondary
Market Corporate Credit Fund, which I think has bought--it is
in the range of $10 billion in total. We have bought no debt
from any large companies in the Primary Corporate Credit Fund,
which was the main facility. And of that $10 billion that we
bought in the secondary market, almost all of that will be
investment grade. So I think we have bought very, very little
noninvestment grade debt. We have bought some, and we bought it
in the form of ETFs as well as in regular bonds, but in terms
of the broader financial markets, it would be a drop in the
ocean.
Senator Tester. So you do not agree with that statement,
that the stock market is actually performing as well as it is?
Mr. Powell. I do not agree with the premise that we have
bought a lot of so-called bad debt. You know, I do not want to
comment on the level of the stock market, directly or
indirectly, but it just is not the case that we bought a lot of
so-called bad debt. We have not.
Senator Tester. OK. Secretary Mnuchin, after the first
quarterly CARES Act oversight hearing, I submitted questions
for the record to you and Chairman Powell, and while I received
answers from the Chairman, I finally received yours last night.
They were inadequate, to put it gently. So you are here. I am
going to give you another opportunity. What measures has the
Treasury put in place to prevent another tribal coronavirus
relief data breach from occurring?
Secretary Mnuchin. I am sorry. Could you repeat that? I had
a hard time----
Senator Tester. I am sorry. What measures has the Treasury
put in place to prevent another tribal coronavirus relief data
breach from occurring again?
Secretary Mnuchin. I am sorry. I could not hear. Something
about a data breach, but I apologize. What was the question?
Senator Tester. I thought we had better technology than
this. What measures has the Treasury put in place to prevent
another tribal coronavirus relief data breach from occurring
again?
Secretary Mnuchin. I am going to have to look into that. I
am not familiar with the tribal data breach that you are
referring to, but I will get back to you quickly.
Senator Tester. We will remind your staff on that. Thank
you guys very, very much.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Scott, are you with us?
Senator Scott. I will start with a question for Chairman
Powell. On Monday the House passed unanimously legislation that
would require the Federal Reserve to expand access to emergency
credit facilities by removing a bias against the nonincumbent
credit rating agencies that serve the middle market. Senator
Sinema and I introduced similar legislation late last week. I
am optimistic that the Senate will act on this legislation
soon. However, I do not believe congressional action should be
necessary given you have the authority to resolve this issue
immediate.
What are your plans to level the playing field in your
facilities for nonincumbent NRSROs?
Mr. Powell. We actually have broadened the circle of those
who are included to include those who have a fairly broad
business, those whom the capital markets rely on in particular
areas. So we have done that. We started off with three NRSROs,
and now I think we are at six. We could come back to you on
that. We could look at broadening that.
Senator Scott. OK.
Mr. Powell. That is not something we have looking at
recently.
Senator Scott. That would be helpful, sir. I would
appreciate you getting back with me on that, and certainly,
Secretary Mnuchin, I thank you for your hard work on the 13(3)
facility. I think we still need to create more flexibility
where we see more folks having access to those resources. That
would be helpful.
Next question: As you both know, I have been fairly
outspoken on this Committee about the goal of building access
to credit and increasing economic opportunity for minority
communities and for the same businesses. Given my passion on
this issue, it is especially tough to witness the seismic
impact that this pandemic has had on black-owned businesses.
When I see reports like the one released last month by the U.S.
Chamber of Commerce, which found that 66 percent of minority
businesses are concerned about having to permanently close
their doors and 13 percent of minority-owned businesses that
have applied for a loan to help survive the economic downturn
have failed to secure funding, I am really shocked at how
direct these statistics are. Couple that with the CEO of Wells
Fargo Charlie Scharf's recent comments that he cannot find
talented black individuals to be employed at Wells Fargo, I
perhaps better understand the plight of so many minority-owned
businesses if the CEO of Wells Fargo believes that he cannot
find enough talent, that is stunning. And if he needs any help,
please have him give me a call.
It is imperative that our most vulnerable and underserved
communities are not left out of the economic recovery by making
sure that those businesses can have access to the full benefits
of the CARES emergency assistance programs that it sought to
provide.
Can you, Chairman Powell, describe some of the actions the
Fed has taken to address the disproportionate impact this
pandemic has had on black-owned businesses and minority
businesses as well?
Mr. Powell. Sure. So let me agree that this is a very
troubling situation. More broadly, the pandemic is falling
heavily on minority and other groups. So we have done quite a
lot of outreach to minority depository institutions, MDIs, and
tried to pull them in and make sure that they are taking part
in the PPP Liquidity Facility and eligible to lend in Main
Street. We have done the same thing with the community
development financial institutions, and, again, we have held
Webinars, we have done lots and lots of outreach to make sure
they are included in the program.
I think in terms of the loans that we are making, you know,
our loans are broadly available to everyone who qualifies, but
these are loans--Main Street is for, you know, somewhat larger
companies. I do think a lot----
Senator Scott. Mid-sized businesses and larger, yes.
Mr. Powell. Yeah, I think that is larger than a lot of
minority businesses, and I do think PPP is also an excellent
solution there.
Senator Scott. I do think, Chair Powell--and I think
Secretary Mnuchin would agree with this--that the utilization
of the MBDAs to help to market the smaller businesses under 300
or 500 employees to the PPP, using the MBDAs has been an
effective strategy. There are few--not many, but few small
minority businesses that qualify for the Main Street Lending
Program, and I certainly would love to see more success in
figuring out how to connect the dots, and I would imagine that
if I am discouraged by the comments of the Wells Fargo CEO,
many entrepreneurs and small businesses, minority businesses,
see the entire financial industry with a bit of a raised
eyebrow on the access to that when you see that 13 percent of
those small businesses were unable to get the credit necessary,
even though we are the guarantor of those loans that become
grants.
Thank you very much.
Chairman Crapo. Thank you.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman. Thank you to
both of our witnesses. And, Secretary Mnuchin, I just want to
say I appreciate your responsiveness. I do not always
necessarily like what I hear, but I appreciate your
responsiveness, and in this business no one ever says that. So
thank you for whenever we have called you, you have been very
responsive.
So, Chairman Powell, Secretary Mnuchin, is it a good idea
for States to raise taxes and send hundreds of thousands of
essential public workers off the front lines into the
unemployment lines during a pandemic and a recession?
Secretary Mnuchin. No, it is not a good idea.
Senator Menendez. Chairman Powell.
Mr. Powell. I would agree. It is not a good idea.
Senator Menendez. So you both agree that, despite facing a
historic $3 trillion deficit this year as well, fiscal
austerity is bad economic policy which would cause additional
pain during this recession. Is that a fair statement?
Secretary Mnuchin. Well, I think we have to be careful, but
I am supportive of additional fiscal measures, as I noted
earlier.
Mr. Powell. I just would add I think there is a time coming
when we are going to need to get back on a sustainable fiscal
path, but I wouldn't not prioritize that in the very near term
when we are still in the middle of the pandemic.
Senator Menendez. And I agree, and that is my point. It is
while we are in the midst of a pandemic.
I would just note that Moody's, once again, its latest
calculus shows that States and local governments are still
somewhere in the $500 billion area of need, and like the
Federal Government, our local communities are facing
skyrocketing costs and declining revenues due to the pandemic.
But unlike the Federal Government, they cannot borrow money to
get through the crisis. Instead, they are being forced to do
the unthinkable: lay off hundreds of thousands of teachers,
nurses, firefighters, and other essential workers at a time
when we need them the most. But there is bipartisan support to
avoid such a disaster. The $500 billion included in the SMART
Act, which I authored and introduced with three Republicans and
three Democrats back in May, mirrors the bipartisan House bill
that exists. And even President Trump said he supports, and I
quote, ``something like the $1.5 trillion bipartisan
proposal.''
So, Mr. Secretary, as the lead negotiator for the White
House, are you optimistic about getting Senate Republicans to
support President Trump's call for a much larger stimulus
package that includes State and local funding?
Secretary Mnuchin. Well, the President has expressed
flexibility to give more money to State and local governments
and also flexibility for the money we have already sent. And as
I said before, I look forward to sitting down with both
Democrats and Republicans to see if we can agree on bipartisan
support that is very necessary across the economy targeted.
Senator Menendez. Well, I appreciate that. I think that
your bigger challenge is going to be with those in the
Republican caucus, of which Senator McConnell himself has said
there are about 20 members of his caucus who do not want to
vote for anything more. And I think there is not any economists
I have seen that suggest that not doing anything more in the
midst of this pandemic is going to meet the challenges of
families and small businesses and getting us back in shape.
Secretary Mnuchin, in June, Chairman Powell issued a
statement on racial equality that said, ``Everyone deserves the
opportunity to participate fully in our society and in our
economy. These principles guide us in all that we do, from
monetary policy to our work to ensure fair access to credit
across the country.''
And on Tuesday, before the House Financial Services
Committee, he stated, ``The rise in joblessness has been
especially severe for lower-wage workers, for women, and for
African American and Hispanics.''
Mr. Secretary, would you agree with those statements?
Secretary Mnuchin. I would.
Senator Menendez. So I have heard from a number of
minority-owned businesses, and I know that in a previous answer
there was a suggestion that PPP--well, there are minority-owned
businesses in the 500-plus category. For example, in our
Nation, Hispanic broadcasting, which serves an essential--an
essential--need in informing, you know, a large part of the
American society, would be in that middle market, but they are
just some. I think we have an opportunity right now to
demonstrate our commitment to serving minority communities in
your implementation of the Main Street Program.
So, Mr. Secretary, could you commit to reviewing the terms
of the Main Street Program to identify what changes could
strengthen minority-owned business participation and share that
analysis with me?
Secretary Mnuchin. I will, and let me just say I know
Senator Warner has been working on it. I have spoken to Senator
Crapo and Senator Scott and others about reallocating some of
our money and committing $10 billion to CDFIs that could be
leveraged to $100 billion of immediate lending into those
communities that are especially hard hit. So I would encourage
this Committee to continue to look at that proposal.
Senator Menendez. Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Sasse.
Senator Sasse. Thank you, Chairman. Thanks to both of you
for being here, Chairman and Secretary.
Secretary Mnuchin, when I am home in Nebraska every
weekend, the most common question I am getting in this space is
about the PPP forgiveness simplification issue for loans under
$150,000, and I am just curious as to whether or not you see a
simplified forgiveness form coming, and given that we are
approaching the 6-month deadline, what should small businesses
do if we do not have certainty on that answer yet?
Secretary Mnuchin. Well, we did create an easy form. I know
there is bipartisan support for going much further, which we
think we need legislation for, and we would support if there is
legislation to have loans under $150,000 have a presumption but
allow for us to audit them as needed. And I know that is
something that has been discussed.
Senator Sasse. Thanks. Do you have any views of any of the
specific proposals on, A, where your regulatory authority ends
and where you need legislation, but then on the specific
legislative proposals?
Secretary Mnuchin. We believe we need additional
legislation to simplify it beyond what we have done, but would
want to maintain, as I said, fraud protection.
Senator Sasse. I completely agree with you on the fraud
protection. So is it your view, though, that small businesses,
given what you know about where we are in the negotiation and
all the hard work you have been doing in that space, as we get
under 6 months from deadline, would you recommend that
businesses that took $145,000, do you think they should fill
out the current what is called ``medium-length form,'' your
easy form but not really simplified yet?
Secretary Mnuchin. Yes, I would. I would encourage them--
the portal is open. I would encourage them to move quickly and
fill that out and not wait for legislation. But if we can get
legislation to help them, that would be great.
Senator Sasse. Thanks. I would be interested in both of
your views on the implications for the real estate markets of
the transition to home remote work that we have seen over the
last 6 months. Chairman Powell, maybe if you would start, I am
interested in both housing and the commercial real estate
markets.
Mr. Powell. You know, there are clearly going to be
significant implications. We do not know how long they will
last, but for now, you know, the prices of homes in the suburbs
and second homes have gone up, and if you own an apartment in
the downtowns of a lot of cities right now, probably the value
has gone down. It is going to be hard to say. Probably some of
this will be sustained. People will work from home more. It is
hard to say, though. You know, if you think 10 years ahead will
it really be different than it would have been otherwise? Maybe
at the margin. It is something we will be watching carefully.
Senator Sasse. Secretary Mnuchin.
Secretary Mnuchin. I think there is no question on the
commercial real estate markets, particularly in the big cities,
there is going to be an impact, and perhaps the only good thing
that has come out of this is that many businesses and us in
Government have figured out that we can actually--part of the
economy sometimes can work effectively remotely. So I think
partial remote work is here to stay.
Senator Sasse. Thank you. I was in a conversation with a
Fortune 500 CEO of an entity that has a lot of commercial real
estate property maybe 6 weeks ago, and he was saying that
during the height of COVID time--pre-COVID they had 70 percent
``butts in seats'' any given day. You have some people who were
sick, some people who are on personal leave, some people who
are on work travel, or some people who might have been on
vacation or sick or remote working. But when they came back
post--you know, being at 0 percent occupancy post-COVID, they
came back and they started at about 29 percent. And the
experience they had is that so many of their folks that were in
their commercial real estate spaces were still having to Zoom
and engage telephonically with people who were on a remote work
situation anyway, but they do not see themselves getting back
to anything like the density potentially ever. So I appreciate
your point, Chairman Powell, that we cannot see into a 5- or
10-year crystal ball, but I think it is important for us to
keep conversing between Article 1 and Article 2 as you are
learning about this, that you would keep our Committee here
given our housing purview in this domain as well.
The Chairman had to step out. I was supposed to call on
someone, but he has returned.
Chairman Crapo. Thank you, Senator Sasse.
And next is Senator Warner.
Senator Warner. Thank you, Mr. Chairman. And I again want
to welcome our witnesses.
I want to step back for one moment, and we have got
differences, but I want to commend Chairman Powell, Secretary
Mnuchin, and, frankly, Members of this Committee. I think we
rose to the occasion back with the first couple of CARES Acts.
We made historic investments. I think history will treat us
well. I appreciate the--I know the Ranking Member, I, the
Chair, and others were in a number of sessions with the
Secretary. The approach we took, I think we desperately need to
get back to that approach. I have never seen a bigger
disconnect between the stock market and the real economy than
right now.
I also want to echo what Senator Scott and Senator Menendez
have said. I want to thank them for being part of the Jobs and
Neighborhood Assistance Act that the Secretary referenced. I
want to thank the Chair and the Ranking Member as well for
their willingness to work on this legislation. This would take
billions of unallocated funds from the CARES Act and directly
invest into MDIs and CDFIs, which the Secretary explained would
dramatically leverage those dollars and help minority
businesses that, as Senator Scott has so accurately pointed
out, really have been disproportionately hurt, 420,000 black-
owned businesses shut down, and we can and must do better. And,
Chairman Powell, I know we have gone back and forth on 13(3) on
this packet there, but I would argue--I know you said earlier
in the week in your testimony that you were concerned about
Main Street going smaller, below 250, and the Fed's capacity to
deal literally with hundreds of thousands, if not millions of
loans. I would argue the way to deal with that or at lest one
tool to deal with that would be the direct equity infusion into
those MDIs and CDFIs whose goal and purpose is to lend to these
smaller institutions. You would not have to necessarily grapple
with all the individual loans, but you could make these kind
of, I think, investments and Fed support programs for these
institutions that service that community. And I again just
really am very, very hopeful that we are going to come to an
agreement and make that additional COVID relief package.
I do want to get to a question, but I want to--I guess the
question I will start with for Chair Powell is, you know, your
two predecessors, a series of both liberal and conservative
economists said we need to make substantial stimulus investment
that is in the trillions of dollars. I would echo my Democratic
colleagues that when the Majority Leader put forward a plan
that was one-third of the size of what even the Trump
administration suggested, that was not a good-faith effort. I
would strongly urge all my colleagues that we ought to not
break. We ought to get another COVID package out. It is
essential. People in my State are hurting. I agree with Senator
Sasse. We need to go ahead and give the Secretary the
presumption on those loans $150,000 and under that they can be
presumed to be grants and really make that form shorter.
But, Chairman Powell, can you address again this issue that
we desperately need this larger relief and that targeted relief
does not mean small, it just means we need to target it to
those most affected? Can you address that?
Mr. Powell. Sure. So, again, I will leave the details--it
is not appropriate for me to express a view on the particular
details of that, but I would say that the recovery we have had
so far owes in significant degree to the CARES Act and the
support that Congress provided in conjunction with the
Administration. And I think while the economy has been doing
better than expected, I think there is downside risk to that if
there is no further fiscal support. The people who are--there
are still something like 11 million whose payroll jobs have
not--they have not gotten their jobs back. Those people are
able to spend now because of the checks that they got and
because of the unemployment insurance that they got, the
enhanced unemployment insurance. There is downside risk to the
economy probably coming if some form of that support does not
continue.
Senator Warner. I guess what I would ask--and I know I am
down to 35 seconds. I would ask both you, Chairman Powell, and
Secretary Mnuchin: Is the risk to the economy long term greater
or less if we undershoot versus overshoot? I would ask you to
simply say, you know, should we understimulate or overstimulate
when we are at this critical point on the margin recognized?
Mr. Powell. Again, I would just say we are going to have
to. We will come back to a place where we need to get the U.S.
Federal Government on a sustainable fiscal path. But I would
not prioritize that now when we are in the middle of a
pandemic.
Senator Warner. Secretary Mnuchin? I know I am over time.
Secretary Mnuchin. What I would say is forget the long
term. The issue is now. And I would just say some is better
than none, so I would encourage again bipartisan support.
And, again, let me also recognize this Committee and the
great work they did, and, Chairman Crapo, if you and the
Ranking Member and other Members want to sit down, I would be
willing to come here anytime to continue to work with you.
Chairman Crapo. Thank you.
Senator Cotton.
Senator Cotton. Probably of people who work in almost any
workplace in America, the Members of this Committee, like the
100 Senators of the U.S. Senate, have been traveling as much as
anyone on airlines, going back to May, and I think we have all
probably had the experience that I have had multiple times of
gate agents or flight attendants or pilots asking me about the
status of negotiations related to additional relief for
airlines. Just this past weekend, flying back to Washington, I
had a flight attendant literally come up and hug me in my seat
because she recognized me--quickly apologized for violating
physical distancing protocol, but that is OK because we both
had our masks on and it was brief--to tell me that she had been
working for over 20 years with this airline, she was afraid she
was about to lose her job in early October, and it would be the
first time in her life she had ever gone on unemployment. And I
told her that we are still working to do everything we could in
Washington to try to avoid that fate, because not a single
person in the airline industry or any of its ancillary
industries or, for that matter, in any business in America from
the frontline workers all the way up to the CEO and the board
is responsible for the fate that these businesses and
industries find themselves in. It is the responsibility of the
Chinese Communist Party and its incompetence and malignancy in
covering up this disease from the very beginning.
Secretary Mnuchin, what is the status of the
Administration's efforts to try to find some relief for the
airline industry in particular? I know that you and the
President and others have been meeting with the leaders of the
companies as well as the leaders of their employees' unions,
and I would just like to hear what you have to say. And I am
sure that those workers would like to hear what you have to say
as well?
Secretary Mnuchin. Thank you. First of all, I just want to
say that the work that was done in the first bill was
extraordinary and literally saved the entire industry. I know
Senator Wicker and others have proposed extending more payroll
support payments in return for not having layoffs, and the
President and I do support that approach.
Senator Cotton. Is there anything that you have under
existing authorities, either the CARES Act authorities or prior
law, that could help the airlines avoid these coming layoffs?
Secretary Mnuchin. Unfortunately, there is not, but, again,
we are encouraged. There is a lot of money in the loan program
that we are not going to use specifically for the airlines and
reallocating that.
Senator Cotton. Thank you.
Chairman Powell, you just noted there are still 11 million
Americans who have not gotten back to work. Almost as many have
gotten back to work who lost their jobs at the height of the
uncertainty about the pandemic in the spring. Obviously, the
airline and related industries are one big one. Could you give
us a sense of the other industries and the kinds of businesses
in which those 11 million Americans who are still out of work
are concentrated?
Mr. Powell. Yes. There are big numbers of people still
unemployed in the businesses that involve a lot of contact with
the public. So it is hotels, entertainment, retail,
restaurants, bars, all of the places where we are getting
people in groups together and facing them face to face. That is
not all of it, but that is a big chunk of the remaining
unemployed.
Senator Cotton. Yes. And I think, again, elected officials
probably experience this as much as anyone in America given the
amount of time we travel and the time we spend in hotels, or we
used to spend in public venues speaking, and I for one am very
mindful--I know most of our Members are as well--about the
impact this virus has had on them in those industries. Is the
single best thing we can do to get a vaccine and get the virus
under control? Putting aside what kind of fiscal or monetary
relief we may provide to them, just given the nature of the
travel and hospitality and tourism and event industry, is the
vaccine the single best thing that we could get?
Mr. Powell. Yes, and in the long run, I think that is what
it is going to take to get business travel back to, you know,
near where it was, for example.
Senator Cotton. OK. A final question. Chairman Powell, you
have cited a couple times as well as in your written testimony
the 13 different programs that the Federal Reserve has stood
up. Which of those programs in your opinion has performed the
best given its stated objectives?
Mr. Powell. So I think the original ones that dealt with
the funding markets stopped pretty quickly what was a budding
run on short-term wholesale financing markets very early on.
Those succeeded.
I would also cite the Corporate Credit Facility for having
opened up the market really without making a single loan.
After that, I would cite--well, the PPLF was very
successful in letting small banks make their PPP loans and then
get them off their balance sheet so they could make more loans.
I think the Municipal Facility has worked in the sense that
we have a quarter of a trillion dollars in muni issuance, which
is much higher than even last year before the pandemic and at
attractive rates.
So I think there is a lot of success. I think there is also
some difficulties. For example, Main Street is much harder,
much more difficult.
Senator Cotton. Thank you.
Senator Crapo. Thank you.
Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
The pandemic and the recession it created have hit
communities of color the hardest, and I have said before that I
believe that we need a policy response that acknowledges that.
But it is equally important to recognize that racial inequality
was amplified by the pandemic. It was not created by it. And
even during periods of strong economic growth, measures of
economic well-being for black and brown Americans has lagged
far behind those for white Americans.
Now, Chairman Powell, the last time that you were before
this Committee, you told me that the persistent economic gap
between black and white Americans was an unhealthy feature of
our economy. Is that still your view?
Mr. Powell. Yes. Yes, it is, Senator.
Senator Warren. Good, and I agree with you on this. Since
it was created in 1913, Congress has spelled out in law the
mission of the Federal Reserve: to keep unemployment as low as
possible and make sure that we have a stable financial system--
the twin goals of the Fed.
Now, you have policy tools at your disposal to accomplish
those goals. For example, your decisions affect how much a
family pays on a mortgage or a car loans. Your decisions
determine how quickly someone gets credit in their bank account
after a paycheck is deposited. But as you and I have discussed
before, black and white families face very different economic
realities in this country, and that means decisions from the
Fed affect those families differently.
So the Fed recently took a step in the right direction by
making it clear that fulfilling its mandate means keeping
interest rates low long enough to allow growth to reach all
households, not just those who are doing well already, and this
is especially important because, historically, in a time of
crisis, black unemployment jumps faster and then takes longer
to go down. And the Fed should not slow economic stimulus
before black workers see real economic gains.
This updated statement interpreting your mandate is a good
first step. But I believe the Fed could be doing more, and that
is why I have introduced a bill with Chair Waters and Senator
Gillibrand to require the Fed to use all of its tools to close
racial economic gaps.
So, Mr. Chairman, when you were here 3 months ago, you said
that the Fed would be looking for ways to use your economic
tools to do more to address racial disparities, so I want to
follow up. Have you identified a comprehensive list of policies
the Fed can pursue in order to make good on these commitments?
What is on your list, Mr. Chairman?
Mr. Powell. I think you see on our part a heightened focus
on economic disparities, including racial economic disparities,
and you see that if you look on our website--on the front page
of our website, we have all of the things we are working on in
that area, and it has really become quite a broad set of
efforts from data collection to research and things like that.
And the reason we do that is that, you know, you give us
maximum employment as the goal, and maximum employment we now
view in our new framework as a broad and inclusive goal, which
really means we are not just looking at the aggregates; we are
going to look at different demographic groups and different
measures.
So I think we are doing the things that we can do with our
tools to address these issues of disparate economic outcomes. I
actually think that the far stronger and more important tools
are not those of the Fed. Nonetheless, I think that we are and
should be using our tools to the extent we can. And, actually,
I would just close by saying that all of that is taking place
under our current legislative mandate. I do not really think
you need to change the law to get us to do this. We are doing
it already.
Senator Warren. Well, I appreciate that, Mr. Chairman, that
you are trying to do this. But I asked you two things. The
first one is just name a couple of the specific things you are
doing. What did you put on your list in the last 3 months?
Mr. Powell. OK----
Senator Warren. I appreciate that you say you have given
focused attention or attention on this. What changes did you
make?
Mr. Powell. The first and most important one is the one
that I mentioned, which was to define our maximum employment
goal as a broad and inclusive----
Senator Warren. But I mentioned that one. What other
things?
Mr. Powell. What other things? You know, I would point to
the fact that we have been outspoken at the Fed on our
commitment to diversity and to, you know, racial justice.
Senator Warren. I appreciate that, Mr. Chairman, but, you
know, words are not good enough on this issue. Every economic
policymaker, including the Fed, should be taking steps to
confront racial economic disparities head on. And, frankly,
this cannot just be a one-time exercise. I appreciate that you
say it is important to you, but the Fed needs to focus on this
issue during your tenure and during the tenure of all future
Federal Reserve Chairs. And that is why I have legislation that
would require the Fed to talk about these gaps as part of its
regular reporting to Congress. And my legislation would also
ensure that the Fed uses everything in its toolkit to eliminate
those racial disparities.
You know, there is so much more the Fed could be doing.
Consider access to credit for black borrowers when evaluating
merger applications. Make sure that payments hit bank accounts
faster. Use the Fed lending facility to prevent layoffs in
State and local government. I get it. The Fed cannot solve
every economic problem on its own, but the Fed is not a
helpless bystander. Its decisions matter, and they matter most
in our vulnerable communities, and it is time for the Fed to
step up on this responsibility.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman. Thank you to both
of you for joining us today.
Despite the challenges that we have faced in standing up
the Paycheck Protection Plan in the first place, South Dakotans
have been overwhelmingly supportive of the relief that the PPP
brought to small businesses. Recently, however, I have started
to hear concerns from dozens of business owners and bankers who
have experienced challenges with the PPP forgiveness portal.
Senator Sasse began this line of questioning and comments,
and I want to add some emphasis to it because I think the
message that we have received back has been considerably
different than just simply having a little bit of time to fill
out these forms. What I would like to do--one lender in
particular sent me a note, and he is pretty direct on it, but I
would like to share it because it kind of points out the
frustration that our lenders have in terms of helping these
small businesses. This is a quote that they sent to me:
``The forgiveness piece of the PPP is a disaster. I have
750 loans out of 1,381 under $20,000. Fifty are under $2,000.
They have basically the same forgiveness process as the loans
of my largest borrower of our $4 million. The simplified
version is not that simple. The GAO has studied it and says it
takes a borrower 15 hours to complete it, and the lender an
additional 75 hours to process. Our borrowers are not happy,
nor are we as bankers. This is not what we signed up for in
order to get disaster payments to our customers. We are trying
to hold off those borrowers under $150,000, but they are
getting anxious. We busted our tails off to get this money out,
and we are getting absolutely screwed by the process. Lenders
feel as though they have really been let down. There is more
than a little fatigue.''
Mr. Chairman, I would like to ask unanimous consent that
additional statements that I have received from South Dakota
bankers expressing frustration with the PPP forgiveness process
to also be entered into the record.
Senator Kennedy [presiding]. Without objection.
Senator Rounds. Thank you.
Secretary Mnuchin, I understand that you are limited in
terms of what you can do with regard to forgiveness, but
simplification should be something that I think we need to take
a second look at. And I would just ask if you would work with
us to see if there is not a way to find a path forward in the
near future, even if we cannot get any more legislation out of
Congress, to find a way to simplify this for both small
borrowers and these lenders, who really did go above and beyond
to try to get this set up in the first place and did a
marvelous job of getting that money out.
Secretary Mnuchin. Thank you, and we will work with you.
And, again, as I have said before, we would support legislation
that simplified this. It does not cost any money, and we would
still retain our right to have the SBA audit as appropriate.
Senator Rounds. And, Mr. Secretary, I agree with you. I
think in whatever number we put together or whatever simplified
form we put together, the ability to be able to go back and to
audit at a date in the future is critical. We do not want to
have fraud involved. But it looks to me like there is a huge
amount of work out there that we are expecting lenders to do
that basically they are not going to get done in a timely
fashion. And we will have a problem that we will have to
address if we do not find a way to resolve this particular
issue.
Chairman Powell--Mr. Secretary, did you want----
Secretary Mnuchin. No. I was just going to say I am going
to go back and, again, address this with the SBA this
afternoon.
Senator Rounds. Thank you, Mr. Secretary.
Chairman Powell, I understand the focus in the near term
needs to be on getting our economy back to a place where it is
firing on all cylinders. But can you briefly discuss how you
are viewing the evolution of the Fed's balance sheet,
recognizing that this is a different type of a situation than
we had back in 2007, 2008, and 2009. We talked a lot back then
about what was on the balance sheet and how it was going to be
moving around. Can you share with us briefly the philosophy
that you would like to follow with regard to the balance sheet
today?
Mr. Powell. Sure. So the balance sheet continues to grow
because of our asset purchases. It turns out that the volume of
loans that we are making under the programs is much less than
might have been the case, which is not to say the facilities
have not worked, just that we have not had to buy a lot. And,
you know, we are a buy-and-hold investor. After the financial
crisis, we allowed assets to mature and run off on their own.
And that would be certainly--by the way, we are a long way away
from that at this point. We will not start doing that until way
down the road. But then we will. You know, we--and the economy
will grow, and the size of the balance sheet relative to the
economy is really the metric, and we will be able to get that
down over time. But it is not something we will be focused on
in the near term.
Senator Rounds. Thank you.
Thank you, Mr. Chairman.
Senator Kennedy. Senator Van Hollen.
Senator Van Hollen. Thank you, Mr. Chairman and Ranking
Member, and I want to thank Chairman Powell and the Secretary
for being here.
I have been listening to the testimony, and, Mr. Secretary,
I understand that both you and the Chairman agree that
additional fiscal help is needed to help working families and
the economy. I also hope we would all agree that we should
provide that relief in the most effective way possible for
working families and to boost the economy. And the
Congressional Budget Office just issued a report on September
18th about the impact of the CARES Act on economic impact. Have
you had a chance to review that report, the CBO report?
Secretary Mnuchin. I have not yet had a chance, but will do
so this afternoon.
Senator Van Hollen. Thank you. I encourage you to do that.
We had a Budget Committee hearing yesterday, and I asked the
Republican-appointed Director of the CBO about the provision in
the report that indicated that aid to State and local
governments was among the most effective tools for helping
working families and boosting the economy. So I really
encourage you to do that.
You are aware of the fact that during the negotiations over
the CARES Act, the original proposal put forward by Senator
McConnell on the floor of the Senate did not include a penny of
appropriations for State and local governments, right?
Secretary Mnuchin. Well, it provided money to education,
which would have saved State and local governments significant
amounts of money. So, in essence, that was.
Senator Van Hollen. Mr. Secretary, that goes directly to
education departments, which is good, and, of course, we
increased that at the time. But there was not a penny--and then
subsequently, when this issue came up, Senator McConnell talked
about letting, you know, States and local governments go
bankrupt. And, of course, the most recent proposal he put on
the floor of the Senate does not include a penny of money for
State and local government even though the CBO report indicates
that is one of the most effective ways.
But as I understand your testimony, you agree that
additional State and local support would be helpful, right?
Secretary Mnuchin. Yes, we do support some additional aid.
Senator Van Hollen. Got it. So I would like to ask you
about a statement you made on national television a few weeks
ago on September 6th, and I am quoting what you said. You said,
``I think before we got into COVID-19, I thought the debt was
very manageable. We were having extraordinary growth. We were
creating growth that would pay down the debt over time.'' That
was the statement you made on Fox.
I asked the Republican-appointed CBO Director about that
statement yesterday at a Budget Committee hearing, and with
respect to the claim that we were creating growth that would
pay down the debt, he simply said that was untrue, just the
budget did not show that. It was flat-out wrong.
But I want to focus on the part of your statement where you
said that, prior to the pandemic, we were experiencing
``extraordinary growth,'' because in 2019, before COVID-19 hit,
economic growth was 2.3 percent. Is that the ``extraordinary
growth'' that you were referring to in that TV interview?
Secretary Mnuchin. We were on track for significant growth
beyond that, and that is correct.
Senator Van Hollen. All right. Mr. Secretary, you were not
on track for significant growth. You have overestimated the
growth repeatedly. You know, President Trump has talked about 4
percent growth. And the reason I ask is that during the second
term of the Obama/Biden administration, the economy grew at 2.4
percent per year, in fact, slightly higher than the economic
growth you were talking about just before the pandemic. So by
your definition, those 4 years of the Obama/Biden
administration experienced extraordinary growth. Is that right?
Secretary Mnuchin. No. Again, I would be happy to go
through my projections with you offline, but we were beyond all
of our projections, and, again, we had projected 3 percent over
time, which is something that has not been done in years, and
we believe the economic----
Senator Van Hollen. Mr. Secretary, it is simply the
difference between projections and reality, and the reality is
that economic growth over the, you know, 4 years of the Obama/
Biden administration was actually slightly higher than the
economic growth in 2019, which you called ``extraordinary
growth.''
Let me ask you now about President Trump's payroll tax
deferral proposal where workers do not have their Social
Security taxes taken out of their paychecks through the end of
the year, but then they owe the money and have to pay it back.
As you know, the private sector really wants nothing to do with
this. It really is a shell game. But I wrote to you about this
along with a number of my colleagues who sent a bipartisan
letter simply asking you this, that with respect to folks in
our military and our Federal civil servants, that you at least
give them the choice as to whether or not to participate, that
you do not force folks in the military or Federal employees to
participate if they do not want to do it.
Senator Kennedy. Could you give us a brief answer, Mr.
Secretary?
Senator Van Hollen. And when we are going to get an answer
to the letter and also what your answer is.
Secretary Mnuchin. I would be happy to follow up with OMB
who is responsible to have the agencies. I think that is
reasonable issue if people do not want to participate with
them, but let me follow up with them.
Senator Kennedy. Thank you, Mr. Secretary.
Senator Van Hollen. Thank you.
Senator Kennedy. Senator Perdue.
[No response.]
Senator Kennedy. He is not here? OK. I think am next.
Mr. Chairman, can you tell me how much money is left, not
without leverage, in the Main Street Lending Program?
Mr. Powell. I am sorry. Without--can you say----
Senator Kennedy. Without the leverage.
Mr. Powell. Without the leverage.
Senator Kennedy. Yes, sir.
Mr. Powell. Well, I think that would just be the equity.
Senator Kennedy. Right.
Mr. Powell. So Treasury committed $75 billion, so most of
that.
Senator Kennedy. Is left?
Mr. Powell. Yes, with no leverage.
Senator Kennedy. Assuming that we are not going to use that
in the next 6 months, of all of our alternatives to try to
stimulate the economy, what is the single highest and best use
of that money?
Mr. Powell. I think we will use some of it. We are using
some of it even as we are speaking here today.
Senator Kennedy. How much do you think you will use?
Mr. Powell. You know, I think that the total loans might
be--I do not know--you know, $10, $20, $30 billion by the end
of the year.
Senator Kennedy. OK. Let us suppose----
Mr. Powell. But that is with leverage.
Senator Kennedy. Let us suppose we have $50 billion left
in, that we will not be--well, let me put it another way. Is
there a higher and better use of that money in the Main Street
Lending Program given what we know about the program right now?
Mr. Powell. I have a strong desire to not get too deeply
into these specific fiscal questions, but I would say, though,
that there are some things that you have talked about today
that would be----
Senator Kennedy. What is the single higher and better use?
Mr. Powell. To me it would be PPP, and then after that I
would say something more for those who remain unemployed.
Senator Kennedy. OK. Mr. Secretary, do you disagree or
agree with that?
Secretary Mnuchin. I do agree with that, not just that
money but the $200 billion that I have on the sidelines.
Senator Kennedy. OK. So if we could agree to take $50
billion of equity from the Main Street Lending Program and
commit it to, for example, PPP, you think that will help the
economy?
Secretary Mnuchin. I do, on top of the $130 billion that is
sitting there unused.
Senator Kennedy. Right. Do you agree with that, Mr.
Chairman?
Mr. Powell. I do. There is this $200 billion, though, that
I think you--I would take that first rather than taking it
directly from Main Street.
Senator Kennedy. Right.
Mr. Powell. Sorry, the part that has not been allocated at
all is $200 billion.
Senator Kennedy. I understand. Mr. Chairman, what is going
to happen if we do not pass another coronavirus bill?
Mr. Powell. Well, I think the risk is that spending will
weaken and that these 11 million-and-change people--and,
actually, there are many more than that whose working lives
have been disrupted, but there are 11 million in the payroll
survey that are unemployed, and some of those are going to have
a hard time getting back to work because they work in those
difficult areas of the economy. And so they have money in the
bank now from the checks that they got and from the
unemployment insurance, and I think they will go through that.
And so we will see sooner or later--probably sooner, we will
see that the economy has a harder time sustaining the growth
that we have seen. That is the risk.
Senator Kennedy. OK. Mr. Secretary, if we in the Senate,
along with our colleagues in the House, could agree to do one
thing to improve our economic situation, what would you
recommend that we do?
Secretary Mnuchin. I would allow us to spend the $130
billion that is sitting in the PPP, money that has been
appropriated by Congress, and allow us to send second checks to
those businesses that are hardest hit and small businesses.
Senator Kennedy. And that would be your number one
priority?
Secretary Mnuchin. That would be.
Senator Kennedy. OK. I am about to run out of time, so I
want to slightly change the subject here. Mr. Secretary, I know
you are part of the President's Working Group on China Markets.
Is that correct?
Secretary Mnuchin. Yes.
Senator Kennedy. And I appreciate your good work on that.
Two of my Democratic friends in the House have told me that
Speaker Pelosi has decided not to move any Senate China bill
that is sponsored or cosponsored by a Republican. How do we
address that?
Secretary Mnuchin. I am not aware of that, but, again, we
would be happy to work with you and follow up.
Senator Kennedy. Could you bring that up with the Speaker?
Secretary Mnuchin. I would be happy to.
Senator Kennedy. Thank you very much.
Thank you, gentlemen, both for your good work. I want to
associate myself with my colleagues' remarks complimenting you.
You have had to do it with happy thoughts and spit and duct
tape, but you have held this thing together, and I want to
thank you.
Senator Cortez Masto.
Senator Cortez Masto. Thank you. Gentlemen, thank you for
being here as well, and I, too, want to thank you for your
responsiveness always and so appreciate that.
Let me talk about something that I know I have talked to
both of you about over the phone and in person, the hard-hit
tourism and hospitality industry. In April, almost 8 million
jobs in the leisure and hospitality sector were lost. I know
you both know that. Workers in the leisure and hospitality
industry experienced a peak decline in employment of more than
52 percent. Nevada's economy has cratered as tourism and travel
stopped. Nevada's unemployment rate is more than 13 percent.
More than 300,000 people continue to claim unemployment
insurance. And in a recent survey from the American Hotel and
Lodging Association, nearly three-quarters of hotels will have
to lay off employees if they do not receive additional
Government funding. In Las Vegas and Reno, employment in our
hospitality and leisure sector is down by nearly 25 percent,
the most among all sectors.
So let me start with you, Secretary Mnuchin, and you and I
have had this conversation, and I know you appreciate how hard
hit our industry is. You talk about there needs to be an
additional targeted relief. Can you identify what that targeted
relief would look like specifically for this industry?
Secretary Mnuchin. Well, I think the PPP is the most
effective way of getting targeted relief to those jobs that you
are referring to, and, again, we would put a revenue decline
test to make sure that it was allocated to the businesses that
really needed it.
Senator Cortez Masto. But it has not been. Listen, I just
heard Senator Rounds even say the PPP was not working in his
State, and it has not worked in Nevada because, clearly, there
are too many of our businesses that are still suffering around
the hospitality industry as well, from live events to
restaurants. So what do we need to do to target it? That is
what I am looking for, because my concern is a comment that you
made earlier that some sort relief is better than nothing. So I
am not about picking winners and losers, and I think that
comment is, unfortunately. I do not see how you can identify an
individual or business that gets relief when some do not. I do
not know how you can identify that maybe the airline industry,
who needs relief and those workers need relief, when we are not
giving direct payments to those who are unemployed and still
working on the unemployment and how we do not still target
funding for State and local governments, how we still do not
target what is necessary right now around the health care
industry, because we all know that is the cause of our economic
woes right now, and we should still be funding that.
All of the things that I have seen put forth in this skinny
bill, they do not fund any of those things. So don't we really
need a comprehensive package? And let me ask both of you, isn't
that what we need here to stimulate and continue to stimulate
our economy to get out of this, a comprehensive package so
nobody is left behind?
Secretary Mnuchin. I just want to clarify. My comment on
some relief was better than no relief was implying that we
should have a compromise and have bipartisan support, because
right now with no legislation that does not do any good.
And I would also just say I think the PPP has helped those
industries an enormous amount. They have just run out of money,
and they need a second check.
Senator Cortez Masto. Right. I do not disagree with you
there. I think we still have to target money to small
businesses. I absolutely agree, and I think that is part of the
concern here, is that by the conversation that I am hearing is
that we are looking at only lifting up some within the
communities and not everyone. And I guess my question again to
you is: Don't we need comprehensive relief here?
Secretary Mnuchin. I do think we need comprehensive relief.
It was not a question of some versus none. It was a question of
right now we are stuck because the Democrats have a commitment
of if it is not less than $2.2 billion, they are not willing to
sit down and talk. And----
Senator Cortez Masto. Well, listen, Secretary. Listen,
Secretary Mnuchin. I can debate this with you all day, but the
public does not care right now. The American public wants some
relief. And you can talk about Democrats, you can talk about
Republicans. Look, we can also talk about the fact that the
Republicans, instead of negotiating with the Democrats in the
Senate behind closed doors, put together a skinny package,
threw it on the floor of the Senate without even going through
Committee, without even any negotiation. And in Mitch
McConnell's own words, there are 20 of his members who do not
want to do anything. We can debate that all day long, but that
does not get us to where we need to be, which is too many
people across this country are suffering, and right now it
requires us to come together and do a comprehensive package.
That is all I am looking for from your is your commitment. You
have done it before. You did it four times before. I want to
see the commitment that you are still there to do a
comprehensive package with everyone.
Secretary Mnuchin. Yes, you have my commitment. I am
available anytime. And, again, I will reiterate this Committee
has been very effective. Mr. Chair, if you and other Members of
this Committee on a bipartisan basis want to sit down, I am
available anytime.
Senator Cortez Masto. Thank you.
Chairman Crapo [presiding]. Thank you, Senator Cortez
Masto, and thank you, Secretary Mnuchin. Your commitment to
trying to put together the kind of package we need, a
comprehensive package, is unmistakable. Your commitment is
solid, and I appreciate your restatement of that commitment to
sit down with us and try to work this out.
Next is Senator McSally.
Senator McSally. Thank you, Mr. Chair. Good to see you,
Secretary Mnuchin, Chairman Powell.
Thanks for your work, Secretary Mnuchin. We worked together
on putting together additional COVID relief that I voted yes on
just a few weeks ago. And just for a review, that included $257
billion, second round of PPP that was really targeted for the
smaller mom-and-pop shops and the hardest hit small businesses,
like many of them in Arizona. They were grateful for the first
round of PPP, but some of them are still struggling trying to
stay afloat, and this really would have been a lifeline for
them.
Also, commonsense liability protections for schools and
hospitals and businesses to protect them from an epidemic of
trial lawyers coming after them while they are following best
practices.
The $300 extra a week in unemployment for that social
safety net, for those who are still unable to work as we
continue to defeat the virus and move the economy forward, you
know, short-term assistance that I championed for child care
providers so that they could reopen and stay open. This is
particularly important for working moms to be able to balance,
get that safe place for their kids to have child care while
they can safely return to work.
Also, I fought to extend the deadline to September 30,
2021, for spending of the already appropriated money in the
CARES Act for States, tribes, and local governments under the
Coronavirus Relief Fund. This was something we have heard from
communities, especially the tribes. It is so important to
extend that, so it was great to see that in the bill. The $31
billion for vaccine therapeutic diagnostic development, vaccine
distribution, restocking the strategic stockpile; $20 billion
of additional farm assistance, again, going out to farmers and
ranchers and growers who do need that support; and $105 billion
for schools to get students safely back to school, both higher
education, K-12, with school choice; and support to the Postal
Service.
I know I am hearing from small businesses. They are doing
everything they can. They are grateful for PPP, and this was a
targeted, strong relief package to get relief out the door.
People are tired of hearing the blame game going on in D.C.
This was going to get needed relief out the door.
Secretary Mnuchin, can you just share, with that $257
billion, as we see the economy--the status of the economy and a
lot of small businesses still struggling, how many small
businesses could we have saved if that $257 billion was out the
door right now and helping small businesses across the country?
Secretary Mnuchin. I do not know the exact number, but it
is an awful lot.
Senator McSally. Yeah, it is. I mean, in Arizona alone,
over 86,000 small businesses took advantage of PPP, and that
was 1 million jobs saved. So just this second round would
really be impactful. If you can just share your views kind of
on the economic recovery and how important this second round of
PPP would be. I mean, look, let us just vote on that on the
floor. Let us just continue to vote on things that we can agree
upon. We should be moving this relief out to small businesses.
So can you just kind of share your view, and Chairman Powell,
of the importance of getting this out the door to support these
small businesses?
Secretary Mnuchin. As I said earlier, I think it would be
the single most impactful area, and, again, I would just
emphasize this does not even require additional funds to be
appropriated.
Senator McSally. Yes.
Secretary Mnuchin. We can have the $130 billion there and
allocate some of the money that we are not going to use on the
Fed facilities. So it would not cost an extra penny.
Senator McSally. Exactly. Chairman Powell, do you have
anything to add just on the importance of getting additional
relief out to small businesses like what I voted yes on a few
weeks ago?
Mr. Powell. Not much. I just would agree that, you know,
this is something that would help the economy.
Senator McSally. Great. Thank you.
And a follow-up on extending the deadline. Again, this is
not additional money. This is money that was already sent out,
the Tribal Relief Fund which I championed, $8 billion out to
tribes, and the resources out to States and local governments.
We were able to get included into that legislation we voted on
in the Senate, extending that for a year.
Now, I have been in the military where we see if we have
got to spend money by the end of the year, you often, you know,
use it or lose it, spend it on not the best things you could
spend it on. And we have heard from tribes, for example, the
Navajo Tribe, who they have got a plan to invest it. But if you
are talking about infrastructure projects, water infrastructure
right-of-way, things that would really be impactful to address
some of the underlying challenges they have had in dealing with
coronavirus, they just cannot get there by the end of the year.
So, again, this is not one additional dollar. It is just an
extension. Could you share again, Secretary Mnuchin, just your
support or your views on----
Secretary Mnuchin. Yes, I strongly support that as well.
Senator McSally. OK, great. Thank you.
And just one last question. I am almost running out of time
here, but maybe we can follow up, because I have heard from
many small businesses they either took advantage of PPP or they
could not, but really they are still struggling related to
managing their bills, managing their debt, and I appreciate we
engaged on this in response to this pandemic, the troubled debt
restructuring provision in the CARES Act. And so the statement
issued directly by the Fed encourages lenders to work with
customers that are experiencing financial hardship to try and
help them, you know, restructure if needed and not have it be a
ding on them.
Unfortunately, I am out of time, but I would like to hear
what you have seen in regards to uptake related to this and the
implementation of this policy and what other actions regulators
or lenders are taking to ensure individuals and businesses
across Arizona and the country where there are options beyond
PPP or the Main Street Lending Program to just help give them
some relief here. So I look forward to following up on the
record.
Chairman Crapo. Thank you, Senator McSally.
Senator McSally. I yield back.
Chairman Crapo. Senator Jones.
Senator Jones. Thank you, Mr. Chairman. I appreciate this
opportunity. Thank you to both the witnesses for their presence
here. I really appreciate that.
Also, you know, I just listened to a review about what was
all in the bill that was voted on a couple of weeks ago.
Unfortunately, time does not permit me to go through all of the
inadequacies of that bill, and they are legion. The fact of the
matter is that that bill was less than half of what was being
floated out there in August, and the Majority Leader had to
reduce that in order to get members of his own caucus to join
it. Clearly, it was more of a partisan bill. It was more of a
partisan vote rather than any effort at all to reach bipartisan
agreement.
I would like to associate myself some with Senator
Menendez's comments about city and local governments. My home
town of Fairfield has suffered. They have had to file
bankruptcy. Just this last Friday in Birmingham, 150 Birmingham
public library employees had to be furloughed.
Mr. Chairman, I would like to submit for the record a chart
detailing the loss for 60 Alabama cities of $40 million that
they have not been able to recoup. I will ask unanimous consent
that that be submitted for the record.
Chairman Crapo. Without objection.
Senator Jones. The Alabama League of Municipalities says 46
percent of those are for lodging taxes. There is a lot that we
can do. I think Senator Menendez covered that appropriately.
Secretary Mnuchin, let me ask you real quick about the
stimulus checks, because while I also hear about PPP and small
businesses, I also hear from a lot of folks about either a next
round or either the 150,000 Alabamians that have not got their
money from the CARES package. The GAO report that was released
this past Monday shows nearly 9 million Americans, 150,000 of
those in Alabama, that have still not received their $1,200
stimulus checks. These are folks that do not make enough that
they do not file taxes. I understand that there was a letter
that was going out in September about urging people to do that,
but there is also an October 15th deadline that I am afraid a
lot of people are not going to make.
Can you commit to extending that October 15th deadline for
a month or so, maybe until December, in order to get these
folks their checks now rather than waiting on some kin of tax
credit that may or may not even work for them?
Secretary Mnuchin. Let me go back and see if we have the
ability to do that, yes.
Senator Jones. OK. Well, that would be great. I think you
do have that ability, but if you could get back with our office
about that, I would very much appreciate it. And I agree with
Senator Menendez about your responsiveness, and I have really
appreciated that during the course of this.
Chairman Powell, real briefly, I think by now folks
recognize that the stock market is not always the best
indicator of where the economy is going. We have seen it has
been like one of my favorite roller coasters down in Georgia,
the Great American Scream Machine. It is up, it is down. It
just depends on how the day traders are looking at the end of a
day--not that it is a bad one, but it is just not the only one.
During the pandemic, many hardworking Americans lost their
child care with daycares closing and elderly relatives worried
about exposure to illness. Without the flexibility of working
from home, many have had to cut back on their hours, and some
cannot work at all, which this means smaller paychecks or no
paychecks whatsoever.
The hardest-hit folks, I think, in my view, are not just
those--if you go to one demographic, it is single moms. In
Alabama, more than 25 percent of Alabama households--25 percent
of Alabama households are headed by single mothers. Of those,
50 percent of those are women and children who live in poverty.
Without some kind of deal in sight that includes a stimulus
check or the ability, if they have not got one already, to get
it, how are these single moms going to put food on the table?
How are they going to pay for the necessities?
So my simple question, Chairman Powell, is: What impact
will consumers with less discretionary spending like these
folks have, what impact will that have on the economy going
forward?
Mr. Powell. Let me just start by agreeing with you that the
burdens of this pandemic have really fallen hard on people just
like the ones you are describing. You know, if people start to
run through what resources they have, they are at risk of
losing their homes or having to move out of the place they are
renting, maybe move back in with family, and those things are
not necessarily good for controlling the spread of the virus.
In addition, of course, they will cut back their spending,
and, again, I would just point to the CARES Act really did a
lot of good in putting money in people's hands and keeping them
in their homes and keeping them spending, keeping them in one
piece. And, you know, going forward, more of that may be
needed.
Senator Jones. Right. Thank you, Mr. Chairman. Thank you,
Secretary Mnuchin. I appreciate you both being here.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Smith.
Senator Smith. Are we there?
Chairman Crapo. Yes, Senator Smith, is that you?
Senator Smith. Yeah, there you go. Can you see me?
Chairman Crapo. Yes, we see you now. Go ahead.
Senator Smith. Thank you, Mr. Chair and Ranking Member
Brown, and I want to also thank Secretary Mnuchin and Chair
Powell for being here.
Chair Powell, I would like to start with you. You know, I
sit in the seat that was once held by Senator Hubert Humphrey,
who was a champion for full employment. In fact, his name is on
the Humphrey-Hawkins bill that sets the dual mandate for the
Fed of maximum employment and stable prices and that you are
charged with implementing. And you have noted several times--I
appreciate your comments about how COVID has not been the great
equalizer, that is disproportionately is affecting people in
low-wage jobs, essential workers, often women and women of
color, black and brown people, indigenous people.
So my question is this: As you think about your mandate at
the Fed and you think about the decisions that you make around
monetary policy, could you just talk a little bit about how you
see the impact of monetary policy on supporting households of
color? We know Fed research has shown that workers of color
tend to recover their lost wages more slowly, for example. I am
interested in knowing how you think about this and how you
might want to bake that more into your work as you go forward.
Mr. Powell. The single best thing we can do is support a
tight labor market, a strong labor market. We saw in the last
few years of the last long expansion that the gains began to go
more and more to people at the lower end of the income
spectrum, more and more to minorities and women, and that was,
we think, significantly because unemployment was very low,
companies were having to look hard to find workers, and it is a
state of affairs that we would love to get back to.
I just would add, though, you know, it took us 8 years to
get from the global financial crisis to that tight labor
market. It just takes a while. And so I think there are other
tools that can help in the meantime, and those are really the
fiscal tools. It is not a good strategy to be waiting, you
know, for unemployment to get really low again, although that
will work ultimately. So that is the main thing that we can do.
Of course, we also have tools where, you know, we supervise
banks to make sure that there is not discrimination along
racial lines and things like that. But by far the most
important thing we can do is seek maximum employment and in
doing so, you know, take account of all groups, all disparate
demographic groups and not just the headline number.
Senator Smith. And what about the relationship between low
interest rates and how communities of color do? What is that
relationship like? And how do you see that?
Mr. Powell. Low interest rates support higher economic
activity over time, and that supports lower unemployment--
higher employment and lower unemployment. It also supports
higher inflation. As the economy gets closer and closer to full
employment and to full capacity, you will see inflation rise--a
little bit, not a lot. So it is a virtue that over time helps
everybody.
Now, in the short run, of course, if you are relying on
interest on your bank account, it does not help you much there.
But over the medium and longer term, it supports job growth and
economic growth generally.
Senator Smith. Thank you. Chair Powell, I appreciate that.
I hope that you will continue to look at how--you know, keep
workers, and especially low-wage workers and workers of color,
in the forefront as you think about monetary policy as well as
what we need to do on fiscal policy. So thank you.
Secretary Mnuchin, I wanted to follow up on something that
I wrote to you about recently. I just received some information
back from you late last night. This has to do with how the
Treasury Department is working to get economic impact
statements--or payments, pardon me, out to folks that are
homeless. People in Minnesota and all over the country are
living in shelters and encampments and cars. In fact, there is
a large tent encampment just a block from where Archie and I
live in Minneapolis, and those folks are not getting their
economic impact payments.
So could you just tell me what you are doing? You said in
the information I received last night that you have some
special tools that you are working on. Of course, I know about
your nonfilers website, but a lot of the folks that I am
talking to do not have access to that website. So what are you
doing, and especially what are we doing with this deadline that
is approaching in just a few weeks?
Secretary Mnuchin. Well, as I mentioned earlier on the
deadline, we will go back and explore that and see what we can
do.
Senator Smith. I appreciate that.
Secretary Mnuchin. But I think, as you have said, we need
to help the homeless. I think the best way to do that is to
work with community organizations that locally can help them
and facilitate obviously for us to be able to do this.
Senator Smith. And do you have any information about how
many folks who are experiencing homelessness have been able to
get their checks? Do you know how you are doing with the
results, what results you are getting?
Secretary Mnuchin. On that specific issue, I will follow up
with your staff and try to get you some statistics.
Senator Smith. OK. That would be helpful, because it is
getting cold in Minnesota, and I do not know what is going to
happen to those folks that are living--literally do not have a
safe place to call home right now. Thank you.
Chairman Crapo. Thank you. And I believe we have Senator
Sinema with us by telephone only. Senator Sinema.
Senator Sinema. Thank you, Chairman Crapo, and thank you to
our witnesses for being here today.
While we saw positive job growth last month in Arizona, a
significant part of those gains appear to be Government jobs we
knew would return, specifically Arizona teachers returning to
schools. Private sector job growth continues to be slow due in
large part to the coronavirus' effect on business operations,
consumer spending, and, most importantly, public health.
One of the emerging issues I am watching is housing.
According to the Census Bureau's Household Pulse Survey, over
300,000 Arizona families missed their July rent payments. Two-
thirds of those households are families with children. This
experimental survey was last taken when Arizona was still
providing an additional $600 per week of enhanced unemployment
insurance. And now that that enhanced UI is no longer
available, it is all but certain the situation has gotten
worse. By the way, a reminder: Arizona's unemployment insurance
tops out at $240 per week, the second lowest rate in the
Nation.
When you cannot make rent, you risk getting evicted. The
National Low Income Housing Coalition projects that 770,000
Arizonans will be at risk of eviction at the end of this year.
So, Secretary Mnuchin and Chairman Powell, thank you both
for being here. Have either of you ever personally experienced
eviction or foreclosure?
Secretary Mnuchin. I fortunately have not, but let me just
say we do support rental assistance. I have spoken to Chairman
Crapo and others, and as part of potential legislation, we
would look forward to working with you.
Mr. Powell. For me, just a no, I have not.
Senator Sinema. Well, as you may know, I was homeless for a
number of years as a child, and I would not wish it on anyone.
I know the challenges that Arizona families are facing right
now, and it is an important perspective for people here in
Washington to understand.
When I was in elementary school, you know, my Dad lost his
job, and my parents got divorced. We lost our car and our home,
and we were homeless for almost 3 years. We lived in an
abandoned gas station without running water or electricity.
Now, this might sound like an extraordinary story, but it is
actually much more common than you would think. And it is
something that millions of Americans could face in the coming
months: receiving a notice of eviction or foreclosure and
having your home taken from you, being forced to abruptly pack
up all of your family's possessions, not knowing where you will
go next. These are incredibly difficult and painful
experiences, and they are hard to explain or understand unless
you have been through them yourself. Too often politicians in
Washington understand evictions and foreclosures as strictly
economic events. But in Arizona, we know that losing your home
does more than hurt your credit. It does more than jeopardize
your financial standing. It takes away your dignity. It is
personal, and at times it can seem like it is impossible to get
back on your feet.
We have an interest in minimizing evictions whenever
possible, but especially during a pandemic. And while the CDC
recently acted to halt evictions until the end of the year,
this decision simply prolongs the inevitable. Without some sort
of rental assistance for families, it shifts the burden but
provides no means of paying for it. And, unfortunately,
Arizona's rental assistance, which was riddled for months with
delays and bureaucracy, is now completely out of money.
Arizona's situation will go from bad to worse if we see mass
evictions and record homelessness during a public health
crisis. This housing crisis could also destabilize our real
estate market, hurt retail businesses by further depressing
consumer spending, and tighten access to credit, all when
Arizona families and businesses can least afford it.
So, Chairman Powell, if Congress fails to pass rental
assistance and hundreds of thousands of Arizonans are evicted
come January, do you anticipate that those evictions would have
a positive or a negative impact on Arizona's economy?
Mr. Powell. Clearly a negative impact.
Senator Sinema. I agree, which is why I am working with
Senators on this Committee to provide targeted rent, mortgage,
and utility assistance to keep Arizonans safely housed during
these challenges times, also working with industry partners and
housing affordability advocates to build broad bipartisan
support so that these proposals could be included in the next
coronavirus relief package.
As we work to get businesses in our economy back on their
feet--and I am pleased to have worked with a number of my
Republican colleagues on these efforts--we cannot forget that
families are struggling. We should have taken action months
ago, and now the needs are more urgent than ever. Arizona
families face tough choices right now, and it is time that
Congress recognize these challenges and take action.
Thank you, Mr. Chairman, thank you, Ranking Member Brown. I
call on us to find a solution for Arizonans and for families
who are struggling across the country. I yield back.
Chairman Crapo. Thank you, Senator Sinema.
That concludes the questioning for today's hearing. Senator
Brown has asked for a minute or two to make an additional
statement, and then we will wrap up the hearing. Senator Brown.
Senator Brown. Thank you, Mr. Chairman, for always giving
me an opportunity at the end of a hearing to ask one more
question of the witnesses and make a short statement.
I first want to thank Senator Sinema for bringing up the
importance of rental assistance, and as you know, we have asked
for $100 billion, which probably as the pandemic goes on barely
covers the assistance we need.
A question, Mr. Secretary, for you briefly. I mentioned an
article about how small businesses--it was in ProPublica--how
small businesses in Cleveland are suffering while big
corporations benefit from access to cheap loans. Did you read
the article that we sent you?
Secretary Mnuchin. I did. I looked at it very quickly on
the way up. I did not have a chance to read the whole thing,
but I saw it briefly.
Senator Brown. OK. I hope you will--I know how busy I am. I
know you are way more busy than almost any of us. I hope that
you will pay some attention to how risky, overleveraged
companies can benefit from a Government backstop while they lay
off workers to keep prices up--keep profits up and bolster
their stock prices. I hope you will read that and really take
it to heart.
Just a statement in closing, Mr. Chairman. Thanks to both
of you, and I agree that both of you--and I speak more
obviously--I speak more to Chair Powell, but both of you are
always responsive to Members of the Senate and to our staffs,
so thank you for that.
Secretary Mnuchin, you and the President and the Fed Chair
all agree we need a large, aggressive, comprehensive bill to
keep the economy working. We cannot do it piecemeal. You know
how this place works by now. It takes months to get a bill
done. Families do not have that kind of time. It has been 6
months, as we know, since CARES passed. Mr. Secretary, you and
the President need to bring Republican Senators to the table
supporting your ideas and our ideas in a bigger package. Get
your act together. Tell Mitch McConnell he needs to put--even
if he has 20 people in his caucus that do not want to do
anything, which Senator Van Hollen said, they need to put a
serious bill forward, because we will get all the Democrats to
work with half or so of the Republican caucus. If we do not get
direct funding, as our witness last week said, with others, the
Republican witnesses chiming in, we could have another Great
Depression on the horizon. The stock market does fine, but Main
Street businesses and restaurants are shutting down. Black and
brown businesses in communities are taking a huge hit for the
second time this decade. Airline executives are doing well.
Airline workers, as Senator Cotton said, are facing job cuts.
We can do better. It comes down to whose side are you on.
As you know, Mr. Secretary and Mr. Chairman, the
Administration and many of my Republican colleagues have,
frankly, not seen the country through the eyes of workers,
which is so important, and they have not really tried. The
House passed the HEROES Act in May. It has been June, July,
August, September, almost all of September. The President
should urge Senate Republicans to take it up or come up with
their own comprehensive--not emaciated, not skinny but
comprehensive package to help all working families. Thanks to
the two of you for testifying.
Chairman Crapo, thanks for your indulgence always and
cooperation.
Chairman Crapo. Thank you. I have just been notified that
one of our Senators, Senator Cramer, may be joining us remotely
and would like to have an opportunity to ask his questions. If
you are with us, Senator Cramer, please let us know, and you
may ask your questions at this point.
[Pause.]
Chairman Crapo. It sounds like Senator Cramer has not been
able to make that connection, and so we will conclude the
hearing.
I would just like to say in response to Senator Brown and
to some of the other comments that have been made, there is a
commitment on the part of the President, on the part of many of
us in Congress to put a strong, fully effective relief package
together. At this point I personally believe that we have not
had the willingness from the other side to engage in a
reasonable package and that the demands continue to be our way
or the highway. And, frankly, I believe that there are many
items that we have already reached agreement on or which we
could reach agreement on very rapidly if we would take them up,
if we had the willingness to simply take them up and do them
individually. And so my hope is that while we continue to work
on a meaningful comprehensive package, that we also recognize
that we need to act and we need to act now, and there is a
significant amount of good, solid relief that we can put
forward rapidly if we can just get agreement to move forward to
do what we can do and continue working on putting the rest of
that package together.
I want to know if those electronic sounds mean that Senator
Cramer has been able to join us. Senator Cramer, are you with
us?
[No response.]
Chairman Crapo. All right. With that, then that concludes
today's hearing. For Senators who wish to submit questions for
the record, those questions are due to the Committee by
Thursday, October 1st. To each of the witnesses, we ask that
you respond to those questions as promptly as you can. And,
again, thank you for taking your time and for all of the effort
that you have put forward in our response to this coronavirus
crisis.
This hearing is adjourned.
Mr. Powell. Thank you, Mr. Chairman.
Secretary Mnuchin. Thank you.
Chairman Crapo. Thank you.
[Whereupon, at 12:25 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
Today we welcome our witnesses to this hearing: The Honorable
Steven T. Mnuchin, Secretary of the Department of the Treasury; and The
Honorable Jerome H. Powell, Chairman of the Board of Governors of the
Federal Reserve System.
Today's witnesses will provide testimony as required under Title IV
of the CARES Act.
Congress has appropriated nearly $3 trillion to protect,
strengthen, and support Americans, to fight the pandemic, and also to
stabilize the infrastructure of our economic system.
Title IV of the CARES Act provided a $454 billion infusion into the
Exchange Stabilization Fund to support the Federal Reserve's 13(3)
emergency lending programs and facilities that facilitate liquidity in
the marketplace and support eligible businesses, States,
municipalities, and tribes.
So far, approximately $195 billion of funds under Title IV of the
CARES Act have been leveraged to provide trillions of dollars in
liquidity back into the markets, supporting credit flow and helping to
stabilize the economy, including through the: Primary Market and
Secondary Market Corporate Credit Facilities; Term Asset-Backed
Securities Loan Facility; Main Street Lending Program; and Municipal
Liquidity Facility.
That leaves around $250 billion in funding remaining under Title IV
of the CARES Act.
There has been significant interest in exploring ways that the Main
Street Lending Program, which offers financial support to smaller and
medium-sized businesses and nonprofits, can be improved to expand its
access and utilization.
Earlier this month, the Banking Committee held a hearing on the
status of 13(3) facilities where witnesses made the case for and
provided recommendations to change the terms of the Main Street Lending
Program to broaden its access and use, and to address the commercial
real estate market.
In that hearing, Hal Scott, President of the Committee on Capital
Markets Regulation, shared his view that, `` . . . small and medium-
sized businesses will need financial support for several years to
recover from the impact of the COVID-19 pandemic.''
He continued, ``While our economy is improving, given the depth to
which it fell, there is still a long way to go. Small business revenues
continue to be well below prepandemic levels, and the recovery has
stalled since July. A key part of this financial support should come
from the Main Street Program authorized by the CARES Act.''
In that same hearing, Jeff DeBoer, President and CEO of the Real
Estate Roundtable, painted a bleak picture of the condition of the
commercial real estate market.
He said, `` . . . it is impacting their ability to meet their debt
service obligations, which increases pressure on financial
institutions, pension fund investors, and others.''
And, `` . . . it is pushing property values down to the detriment
of local governments. It is causing much stress in pools for commercial
mortgage-backed securities. It is threatening to result in countless
commercial property foreclosures. The situation must be addressed.''
In July, I sent a letter to each of you, Secretary Mnuchin and
Chairman Powell, urging you to expand access to the Main Street Lending
Program, including by setting up an asset-based lending program and
addressing the commercial real estate market.
In addition to expanding the Main Street Lending Program, there has
been meaningful interest in opportunities to allocate any remaining
CARES Act funds.
In August, House Financial Services Committee Ranking Member
McHenry and I sent a letter to the each of you urging you to implement
the remaining funds under Title IV to work to the fullest extent,
including by expanding the Main Street Lending Program, to further
support Main Street businesses, their workers and the American economy.
The Federal Reserve's 13(3) facilities play a critical role in
strengthening the economic recovery.
It is important to continually assess what areas of the economy and
financial markets continue to be in need of support; and identify
options for providing additional needed support, whether through
expanding existing facilities or creating new facilities.
In July, I sent a letter to the Federal banking regulators urging
each of them to extend and expand critical CARES Act relief where there
is discretion, including relief for: The Community Bank Leverage Ratio
to at least December 31, 2021; Troubled Debt Restructurings to at least
January 1, 2022; and The Current Expected Credit Losses to at least
January 1, 2023.
Since that letter, I have heard additional concerns from both banks
and credit unions.
Not only have banks and credit unions experienced a significant
inflow of deposits during this pandemic, but Congress also tasked them
with supporting the economy, particularly through the Paycheck
Protection Program.
Their role and these unique circumstances threaten to cause key
regulatory thresholds to be breached and a ratcheting up of regulation
that would otherwise not occur that could keep them on the sidelines.
The regulatory framework should account for these unique
circumstances, and enable banks and credit unions to continue
supporting the recovery.
Title IV also contains robust oversight provisions.
Section 4026 is what brings us here today, and it also established
the Congressional Oversight Commission, which has held two public
hearings and issued four reports to date, and the Special Inspector
General for Pandemic Recovery, who has, to date, issued one report and
continues its important work.
During today's hearing, I look forward to hearing: how the
financial resources provided under the CARES Act have benefited the
American people and economy; an update on the status of 13(3) emergency
facilities, including an assessment of the opportunities for and need
to expand the Main Street Lending Program; steps the Fed and Treasury
have taken and will continue to take to provide transparency into the
loans, loan guarantees, and other investments under the CARES Act;
opportunities to utilize any remaining funds of the CARES Act to
provide financial support and additional liquidity to the economy; and
opportunities to tailor the regulatory framework to account for the
unique circumstances of the pandemic and role of the financial
institutions, and whether congressional action is needed.
Although there have been positive economic signs in recent months,
Americans are continuing to still struggle with and feel the effects of
the COVID-19 pandemic still need relief.
Unfortunately, Republicans' repeated efforts to deliver targeted
relief in areas where we can agree has been rebuffed by Democrats.
Negotiating toward a realistic package that can actually get passed
and signed into law would best serve the American people during this
difficult time.
I appreciate the work of both Secretary Mnuchin and Chairman Powell
in response to this horrible pandemic to support financial markets,
businesses, and the economy.
Thank you to each of you for joining the Committee today.
______
PREPARED STATEMENT OF SENATOR SHERROD BROWN
Thank you, Chair Crapo. While I'm disappointed this hearing wasn't
held fully remote, I'm glad to see masks in the hearing room. Chair
Powell, I also want to thank you for your leadership in calling for a
national mask mandate--something no other Republican I'm aware of has
done. I know many of my colleagues cringe when they see these Trump
rallies when they see people packed together, shouting and not wearing
masks. We should be trying to stop this virus, not spread it.
Today, there are more people out of work than there were during the
2008 financial crisis. But you wouldn't know it from the way President
Trump and Secretary Mnuchin act, as if we are through the crisis and
well on the road to recovery. That's what happens when you only measure
the health of the country by the stock market.
There continue to be almost 1,000 deaths per day from the
coronavirus--that doesn't show up in the quarterly earnings reports. In
22 States, coronavirus cases are surging rather than receding, and
scientists and public health experts predict it will only get worse as
fall and winter begin.
Families are under unbearable stress--my colleagues know that. Most
of you have children and grandchildren, trying to either educate their
kids at home, or worrying as schools open without sufficient plans to
protect kids and teachers and custodians and bus drivers. And that
doesn't even include our sons and daughters at risk at colleges and
universities.
But you wouldn't know any of that if you only looked at corporate
profit forecasts.
This President and this Administration continue to act like
everything is business as usual--because, for them, it is.
The coronavirus isn't really affecting them or their wealthy
friends or their comfortable jobs. CEOs aren't the people working the
cash registers or cleaning hospital beds--they aren't risking their
lives every day to keep food on the table. Most CEOs don't live in the
neighborhoods where Black and minority-owned restaurants and businesses
are shutting down.
Think of the anxiety of an essential worker, and the stress she
faces--think about coming home at night and worried you picked up the
virus at work, and are bringing it home to your family.
Cleveland is always a pretty good barometer of where the country is
heading.
Long before the Great Recession, our trade and tax policy
essentially abandoned the industrial Midwest. Communities watched
factory after factory close, with no plan to rebuild our local
economies. Entire neighborhoods and entire towns hollowed out. My zip
code, 44105, had the most foreclosures in the United States at the
beginning of 2007. By the next year, thousands of cities across the
country were suffering, as millions of families lost their homes. The
story of our zip code became the story of the whole country, because
the Government took care of Wall Street, it took care of the biggest
banks--but it failed to take care of everybody else.
Just 10 years later, we have yet another crisis where Cleveland is
a harbinger of what's happening across the country. ProPublica
illustrated it pretty well recently--they covered a big company called
TransDigm that has offices in downtown Cleveland. TransDigm has gotten
plenty of help from the taxpayers to get through this pandemic--the
company is borrowing money at record low-interest rates and it's
collecting yet more tax breaks--while at the same time, it's laying off
its workers. More than 3,000 workers in Cleveland are going to lose
their jobs during a pandemic, while the company's executives keep
making money. Their chairman made $60 million a year at last count.
And this is happening all over the country--Government help is
readily available for big corporations, while small businesses struggle
to survive, and workers are on their own.
Millions have lost their jobs. And at the beginning of August, they
lost the $600 a week unemployment insurance, because of this President
and my Republican colleagues. That $600 a week kept more than 12
million people out of poverty.
What are these families to do? How they are going to make rent or
their mortgage payment next week on October 1st? You can't tell them,
``oh go out and get a job.'' There are no jobs, because the President
hasn't controlled the spread of the virus.
Millions of people are stuck inside their homes and are separated
from loved ones to stay safe, trying to avoid contracting this disease.
Black and brown communities, including Native American tribes, have
been hit the hardest by the pandemic, but still don't have equal access
to the Federal Reserve lending facilities or PPP loans.
We know that it would not have been this bad if the President had
done his job. Imagine if instead of lying to us, the President had
treated us like adults and leveled with the American people.
Imagine if he'd worn a mask and practiced social distancing.
Imagine if he'd had a real plan to mobilize all of America's vast
ingenuity and talent to scale up production of tests and PPE.
More small businesses would still be open right now and kids would
still be in school and workers would still have their jobs and parents
and grandparents would still be alive.
And now Americans are watching the stock market surge, and their
President and his economic advisers saying the economy is great.
They're wondering what great economy they are talking about.
The Ohioans I talk to--and anyone who actually understands
economics--know workers are the foundation of our economy. And they
know all too well what happens when you let Wall Street run things, and
ignore Main Streets across this country.
Ohioans have watched for decades as factories closed, investment
dried up, and storefronts were boarded over, in communities that once
were thriving. They know what it's like to wake up one day, and realize
the only jobs to be had are at a big-box chain for rock-bottom wages,
with no health care, no paid sick days, and no power over your
schedule.
Those Ohio workers know what it's like to be treated as expendable
by corporations, and too often, by their own Government.
And remember--as goes Ohio, so goes the Nation. Americans are
waking up, and realizing they have a President who thinks much of the
country is expendable.
I know not everyone in Government feels that way. The Chairman of
the Fed has said over and over that we need more action from Congress--
more money to unemployed workers, more money for schools, more money to
help families with their rent or mortgage--in short, we need the
Government to actually lead, and use our country's vast resources to
avoid a catastrophic recession.
In our last hearing in this Committee all of the expert witnesses,
those chosen by the minority and those chosen by the majority, agreed
on one thing--people need their Government to actually step in to
support our families, something the Senate majority has failed to do.
It seems the only people who aren't getting that message are
President Trump, Secretary Mnuchin, and Republican Senators.
It's not as if Republicans are not capable of taking action. Mitch
McConnell moves heaven and earth to do huge favors for big
corporations.
Look at the tax giveaway--we spent two trillion dollars making the
richest people in our country richer. The President promised it would
grow the economy, he promised it would pay for itself, he promised it
would mean workers got a $4,000 raise. Of course, none of that
happened.
It was incredibly unpopular, but Senator McConnell got all of his
Republican Senators to vote for it.
Senator McConnell has made sure Trump's corporate judges are
approved. He's bent over backwards to stack a Supreme Court that will
gut the Affordable Care Act, rip away protections for preexisting
conditions, and always side with corporations over workers.
Now we know he's even willing to reverse his own position to
confirm yet another Supreme Court Justice.
When it comes to doing the bidding of Wall Street and the wealthy,
Mitch McConnell can whip the Senate into action. He thinks everything
else can wait.
Most Americans can't afford to wait any longer. We are up against a
global health crisis that will spiral into a global economic crisis
unless we act now. We are facing a challenge that requires this
Government to be at its best, to work together to do big things.
We need an economic rescue package for everyone, help to keep
families in their homes, and to protect workers at their jobs, help for
seniors and veterans and students who are at risk. And we need it fast.
Democrats are ready to meet this moment. House Democrats passed the
HEROES Act 5 months ago. President Trump and Senate Republicans move
heaven and earth to help Wall Street and their wealthy friends--when
will they be ready to do the same for everyone else?
______
PREPARED STATEMENT OF STEVEN T. MNUCHIN
Secretary, Department of the Treasury
September 24, 2020
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
I am pleased to join you today to discuss the critical steps the
Department of the Treasury and the Federal Reserve have taken over the
last 6 months to provide economic relief for the American people, as
well as to provide liquidity to credit markets, businesses, and
households. We are fully committed to getting every American back to
work as quickly as possible.
Economic Recovery
America is in the midst of the fastest economic recovery from any
crisis in U.S. history. The August jobs report showed that the economy
has gained back 10.6 million jobs since April--nearly 50 percent of all
jobs lost due to the pandemic. The unemployment rate has also decreased
to 8.4 percent, a notable achievement considering some people were
expecting up to 25 percent unemployment at the height of the pandemic.
Thanks to the programs provided through the CARES Act, we never got
close to that figure.
I believe we will see tremendous third-quarter growth, fueled by
strong retail sales, housing starts and existing home sales,
manufacturing growth, and increased business activity. The September
Blue Chip survey increased its projection for third-quarter GDP growth
by 5.3 percentage points to 24 percent.
The recovery has been strong because the Administration and
Congress worked together on a bipartisan basis to deliver the largest
economic relief package in American history. The Federal Reserve has
also been instrumental to the recovery by implementing 13 unique 13(3)
lending facilities.
Economic reopenings, combined with the CARES Act, have enabled a
remarkable economic rebound, but some industries particularly hard hit
by the pandemic require additional relief.
Phase IV Relief
The President and I remain committed to providing support for
American workers and businesses. We continue to try to work with
Congress on a bipartisan basis to pass a Phase IV relief package. I
believe a targeted package is still needed, and the Administration is
ready to reach a bipartisan agreement.
Transparency
Treasury has been working hard to implement the CARES Act with
transparency and accountability. We have released a significant amount
of information to the public on our website, Treasury.gov, and on
USAspending.gov. In many instances, we have released more information
than what is required by the statute. The Federal Reserve has also
posted information on its website regarding its lending facilities.
We have provided regular updates to Congress, with this marking my
seventh appearance before Congress for a CARES Act hearing.
Additionally, we are cooperating with various oversight bodies,
including the new Special Inspector General for Pandemic Relief, the
Treasury Inspector General, the Treasury Inspector General for Tax
Administration, the new Congressional Oversight Commission, and the
Government Accountability Office (GAO).
We appreciate Congress' interest in these issues and have devoted
significant resources to responding to inquiries from numerous
congressional committees and individual Members of Congress on both
sides of the aisle. We remain committed to working with you to
accommodate Congress' legislative needs and to further our whole-of-
Government approach to defeating COVID-19.
Conclusion
I would like to thank the Members of the Committee for working with
us to provide critical economic support to the American people. I am
pleased to answer any questions you may have.
______
PREPARED STATEMENT OF JEROME H. POWELL
Chair, Board of Governors of the Federal Reserve System
September 24, 2020
Chairman Crapo, Ranking Member Brown, and other Members of the
Committee, thank you for the opportunity to update you on our ongoing
measures to address the hardship wrought by the pandemic. The Federal
Reserve, along with others across Government, is working to alleviate
the economic fallout. We remain committed to using our tools to do what
we can, for as long as it takes, to ensure that the recovery will be as
strong as possible, and to limit lasting damage to the economy.
Economic activity has picked up from its depressed second-quarter
level, when much of the economy was shut down to stem the spread of the
virus. Many economic indicators show marked improvement. Household
spending looks to have recovered about three-fourths of its earlier
decline, likely owing in part to Federal stimulus payments and expanded
unemployment benefits. The housing sector has rebounded, and business
fixed investment shows signs of improvement. In the labor market,
roughly half of the 22 million payroll jobs that were lost in March and
April have been regained as people return to work. Both employment and
overall economic activity, however, remain well below their prepandemic
levels, and the path ahead continues to be highly uncertain. The
downturn has not fallen equally on all Americans; those least able to
bear the burden have been the most affected. The rise in joblessness
has been especially severe for lower-wage workers, for women, and for
African Americans and Hispanics. This reversal of economic fortune has
upended many lives and created great uncertainty about the future.
A full recovery is likely to come only when people are confident
that it is safe to reengage in a broad range of activities. The path
forward will depend on keeping the virus under control, and on policy
actions taken at all levels of Government.
Since mid-March, we have taken forceful action, implementing a
policy of near-zero rates, increasing asset holdings, and standing up
13 emergency lending facilities. We took these measures to support
broader financial conditions and more directly support the flow of
credit to households, businesses of all sizes, and State and local
governments. Our actions, taken together, have helped unlock more than
$1 trillion of funding, which, in turn, has helped keep organizations
from shuttering, putting them in a better position to keep workers on
and to hire them back as the economy continues to recover.
The Main Street Lending Program (Main Street) has been of
significant interest to this Committee and to the public. Many of the
businesses affected by the pandemic are smaller firms that rely on
banks for loans, rather than public credit markets. Main Street is
designed to facilitate the flow of credit to small and medium-sized
businesses. In establishing the facility, we conducted extensive
outreach, soliciting public comment and holding in-depth discussions
with lenders and borrowers of all sizes. In response to feedback, we
have continued to make adjustments to Main Street to provide greater
support to small and medium-sized businesses and to nonprofit
organizations such as educational institutions, hospitals, and social
service organizations.
Nearly 600 banks, representing well more than half of the assets in
the banking system, have either completed registration or are in the
process of doing so. About 230 loans totaling roughly $2 billion are
either funded or in the pipeline. Main Street is intended for
businesses that were on a sound footing prepandemic and that have good
longer-term prospects but which have encountered temporary cash flow
problems due to the pandemic and are not able to get credit on
reasonable terms as a result. Main Street loans may not be the right
solution for some businesses, in part because the CARES Act states
clearly that these loans cannot be forgiven.
Our credit facilities have improved lending conditions broadly,
including for potential Main Street borrowers. The evidence suggests
that most creditworthy small and medium-sized businesses can currently
get loans from private-sector financial institutions.
Many of our programs rely on emergency lending powers that require
the support of the Treasury Department and are available only in
unusual circumstances. By serving as a backstop to key credit markets,
our programs have significantly increased the extension of credit from
private lenders. However, the facilities are only that--a backstop.
They are designed to support the functioning of private markets, not to
replace them. Moreover, these are lending, not spending, powers. Many
borrowers will benefit from these programs, as will the overall
economy, but for others, a loan that could be difficult to repay might
not be the answer. In these cases, direct fiscal support may be needed.
Our economy will recover fully from this difficult period. We
remain committed to using our full range of tools to support the
economy for as long as is needed.
Thank you. I look forward to your questions.
Summary of Section 13(3) Facilities Using CARES Act Funding
The Municipal Liquidity Facility
The Municipal Liquidity Facility (MLF) helps State and local
governments better manage the extraordinary cash flow pressures
associated with the pandemic, in which expenses, often for critical
services, are temporarily higher than normal and tax revenues are
delayed or temporarily lower than normal. This facility addresses these
liquidity needs by purchasing the short-term notes typically used by
these Governments, along with other eligible public entities, to manage
their cash flows. By addressing the cash management needs of eligible
issuers, the MLF was also intended to encourage private investors to
reengage in the municipal securities market, including across longer
maturities, thus supporting overall municipal market functioning.
Under the MLF, the Federal Reserve Bank of New York lends to a
special purpose vehicle (SPV) that will directly purchase up to $500
billion of short-term notes issued by a range of eligible State and
local government entities. Generally speaking, eligible issuers include
all U.S. States, counties with a population of at least 500,000
residents, cities with a population of at least 250,000 residents,
certain multistate entities, and revenue-bond issuers designated as
eligible issuers by their State governors. Notes purchased by the
facility carry yields designed to promote private market
participation--that is, they carry fixed spreads based on the long-term
rating of the issuer that are generally larger than those seen in
normal times. With funding from the CARES Act (Coronavirus Aid, Relief,
and Economic Security Act), the Department of the Treasury has
committed to make a $35 billion equity investment in the SPV.
As of September 18, the facility had purchased two issues for a
total outstanding amount of $1.7 billion.
The MLF has contributed to a strong recovery in municipal
securities markets, which has facilitated a historic issuance of more
than $250 billion of bonds since late March. State and local
governments and other municipal bond issuers of a wide spectrum of
types, sizes, and ratings have been able to issue bonds, including long
maturity bonds, with interest rates that are at or near historical
lows. Those municipal issuers who do not have direct access to the
Federal Reserve under the MLF have still benefited substantially from a
better-functioning municipal securities market.
The Main Street Lending Program
The Federal Reserve established the Main Street Lending Program
(Main Street) to support lending to small and medium-sized businesses
and nonprofit organizations that were in sound financial condition
before the onset of the COVID-19 pandemic and that have good longer-
term prospects but which have encountered temporary cash flow problems
due to the pandemic, and are not able to get credit on reasonable terms
as a result. In addition to providing loans for borrowers in current
need of funds, Main Street offers a credit backstop for firms that do
not currently need funding but may if the pandemic continues to erode
their financial condition.
Under Main Street, the Federal Reserve Bank of Boston has set up
one SPV to manage and operate five facilities: the Main Street New Loan
Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), the
Main Street Expanded Loan Facility (MSELF), the Nonprofit Organization
New Loan Facility (NONLF), and the Nonprofit Organization Expanded Loan
Facility (NOELF). The SPV will purchase up to $600 billion in Main
Street loan participations, while lenders retain a percentage of the
loans. Main Street loans have a 5-year maturity, no principal payments
in the first 2 years, and no interest payments in the first year.
Businesses with less than 15,000 employees or 2019 revenues of less
than $5 billion are eligible to apply for Main Street loans. Available
loan sizes span from $250,000 to $300 million across the facilities and
depend on the size and financial health of the borrower. With funding
from the CARES Act, the Department of the Treasury has committed to
make a $75 billion equity investment in the SPV.
The business facilities (MSNLF, MSPLF, and MSELF) and nonprofit
facilities (NONLF and NOELF) have broadly similar terms, but differ in
their respective underwriting standards.
The business facilities use the same eligibility criteria for
lenders and borrowers and have many of the same terms, while other
features of the loans extended in connection with each facility differ.
The loan types also differ in how they interact with the borrower's
outstanding debt, including with respect to the level of precrisis
indebtedness a borrower may have incurred. Similarly, the nonprofit
facilities have many of the same characteristics, but some features of
the loans extended in connection with each facility differ. Eligible
lenders may originate new loans under MSNLF, MSPLF, and NONLF or may
increase the size of existing loans under MSELF and NOELF.
Main Street became operational on July 6. The Federal Reserve and
Treasury have modified the program several times to reflect extensive
consultations with stakeholders. As of September 18, nearly 600 lenders
representing more than half of U.S. banking assets have registered to
participate in the program, and the program has purchased over $1
billion in participations.
Since Main Street became operational, the number of registered
lenders and the amount of loan participations continue to increase.
Program usage, will depend on the course of the economy, the demand for
credit by small and medium-sized businesses, and the ability of lenders
to meet credit needs outside the Main Street program. Demand for Main
Street loans may increase over time if the pandemic continues to affect
the ability of businesses and nonprofits to access credit through
normal channels and as other support programs expire.
The Secondary Market Corporate Credit Facility
The Secondary Market Corporate Credit Facility (SMCCF) is designed
to work alongside the Primary Market Corporate Credit Facility (PMCCF)
to support the flow of credit to large investment-grade U.S. companies
so that they can maintain business operations and capacity during the
period of dislocation related to COVID-19. The SMCCF supports market
liquidity by purchasing in the secondary market corporate bonds issued
by investment-grade U.S. companies, U.S. companies that were investment
grade before the onset of the pandemic and remain near-investment-
grade, and U.S.-listed exchange-traded funds (ETFs) whose investment
objective is to provide broad exposure to the market for U.S. corporate
bonds.
Under the SMCCF, the Federal Reserve Bank of New York lends to an
SPV that purchases in the secondary market both corporate bond
portfolios in the form of ETFs and individual corporate bonds to track
a broad market index. The SMCCF purchases ETF shares and corporate
bonds at fair market value in the secondary market and avoids
purchasing shares of ETFs when they trade at prices that materially
exceed the estimated net asset value of the underlying portfolio. The
pace of purchases is a function of the condition of the U.S. corporate
bond markets. With funding from the CARES Act, the Department of the
Treasury has committed to make a $75 billion equity investment in the
SPV for the PMCCF and SMCCF, with a $25 billion allocation toward the
SMCCF.
The SMCCF staggered its launch of ETF and bond purchases in order
to act as quickly and effectively as possible. Through ETF purchases
beginning on May 12, the SMCCF provided liquidity to the corporate bond
market relatively quickly. The Federal Reserve began direct corporate
bond purchases under the broad market index purchase program on June
16. In its first week of bond purchases, the SMCCF was purchasing about
$370 million per day. As of September 18, purchases have been slowed to
a current daily pace of approximately $20 million of bonds and no ETFs,
and the total SMCCF outstanding value has reached $12.8 billion.
The SMCCF's announcement effect was strong, quickly improving
market functioning and unlocking the supply of hundreds of billions of
dollars of private credit. Since late March, more than $800 billion in
corporate bonds have been issued without direct Government or taxpayer
involvement. The SMCCF has materially reduced its pace of purchases
over the past few months as a result of the substantial improvements in
the functioning of the U.S. corporate bond markets. The pace of
purchases going forward will continue to be guided by measures of
market functioning, increasing when conditions deteriorate and
decreasing when conditions improve.
The Primary Market Corporate Credit Facility
The Primary Market Corporate Credit Facility (PMCCF) is designed to
work alongside the Secondary Market Corporate Credit Facility (SMCCF)
to support the flow of credit to large investment-grade U.S. companies
so that they can maintain business operations and capacity during the
period of dislocation related to COVID-19. The PMCFF supports market
liquidity by serving as a funding backstop for corporate debt.
Under the PMCCF, the Federal Reserve Bank of New York lends to an
SPV. The SPV will purchase qualifying bonds and syndicated loans with
maturities up to 4 years either as the sole investor in a bond issuance
or as a participant in a loan or bond syndication at issuance, where
the facility may purchase a maximum of 25 percent of the syndication.
With funding from the CARES Act, the Department of the Treasury has
committed to make a $75 billion equity investment in the SPV for the
PMCCF and SMCCF, with a $50 billion allocation toward the PMCCF.
As of September 18, there have not been any PMCCF transactions, nor
have any indications of interest been received.
The dual announcement of the SMCCF and PMCCF was well received by
the market. Between March 23 and April 6, credit spreads for
investment-grade bonds declined substantially. While the PMCCF has not
purchased any bonds since it opened, it serves as a backstop should
markets enter another period of stress.
The Term Asset-Backed Securities Loan Facility
The Term Asset-Backed Securities Loan Facility (TALF) supports the
flow of credit to consumers and businesses by enabling the issuance of
asset-backed securities (ABS) guaranteed by newly and recently
originated consumer and business loans.
Under the TALF, the Federal Reserve Bank of New York lends to an
SPV. The SPV will make up to $100 billion of 3-year term loans
available to holders of certain triple A-rated ABS backed by student
loans, auto loans, credit card loans, loans guaranteed by the Small
Business Administration (SBA), and certain other assets. The Federal
Reserve lends an amount equal to the market value of the ABS less a
haircut and the loan is secured at all times by the ABS. With funding
from the CARES Act, Treasury has committed to make a $10 billion equity
investment in the SPV.
As of September 18, the TALF has extended $2.9 billion in loans
since its launch on May 20. Loans have been collateralized by SBA-
guaranteed ABS, commercial mortgage-backed securities (CMBS), and
premium--finance and student--loan ABS.
The announcement and presence of the TALF has helped improve
substantially liquidity in the ABS markets, including those for CMBS
and collateralized loan obligations, with spreads in some ABS sectors
returning close to normal levels. The TALF interest rates are
attractive to borrowers when market conditions are stressed, but not in
normal conditions. While the facility is authorized to extend up to
$100 billion in loans, total take-up will likely be much less unless
ABS market conditions worsen.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM STEVEN T. MNUCHIN
Q.1. Congress gave Treasury and the Fed billions of dollars in
CARES Act money to support Main Street businesses, States, and
local governments, and their workers. But instead of setting up
programs that protect jobs and get money to the businesses and
localities and tribes that need it most, Treasury has made it
too difficult and only a tiny fraction of the funds have been
used. Meanwhile, Treasury has been all too eager to approve
programs that help the biggest corporations without requiring
them to keep and pay their employees. How many workers at
companies that benefited from any of the emergency programs
established by Treasury and the Federal Reserve have lost their
jobs between March 15, 2020 and September 30, 2020?
A.1. The recovery has been strong because the Administration
and Congress worked together on a bipartisan basis to deliver
the largest economic relief package in American history. The
Federal Reserve has been instrumental to the recovery by
implementing 13 unique lending facilities under section 13(3)
of the Federal Reserve Act. The economic reopening combined
with the Coronavirus Aid, Relief, and Economic Security (CARES)
Act have enabled us to have an economic rebound, but some
industries particularly hard hit by the pandemic require
additional relief.
The Chairman of the Federal Reserve and the Secretary
executed the first facilities even before the CARES Act was
passed when the markets were literally shut down. These were
emergency facilities intended to stabilize the markets and, in
a best scenario, not to be drawn upon. In many cases, the mere
announcement of the commitments unlocked the capital markets.
With the Main Street Lending Program, which is targeting the
private lending market for small and medium-sized businesses,
borrowers must certify that they will make commercially
reasonable efforts to retain employees during the term of the
Main Street loan. Specifically, borrowers committed to
undertake good-faith efforts to maintain payroll and retain
employees, in light of its capacities, the economic
environment, its available resources, and the business's need
for labor. The President and Secretary remain committed to
providing support for American workers and business. We
continue to work with Congress on a bipartisan basis to pass a
phase 4 relief program. We believe that a targeted package is
still needed, and the Administration is ready to reach a
bipartisan agreement.
Q.2. Many companies, without additional funding, may not make
it through the pandemic, ensuring many jobs won't exist a year
or two from now. What can Treasury do for workers at companies
that don't qualify for the Main Street Lending Facilities but
also do not qualify for a PPP loan?
A.2. Treasury looks forward to working with Congress on a
bipartisan basis to continue to provide much-needed relief to
businesses across the country.
Q.3. According to a recent Brookings Institute study, as many
as 1.5 million State and local government employees have been
laid off since the beginning of the COVID-19 crisis. \1\ This
is more State and local government jobs than were lost in the
entire financial crisis and ensuing recession. \2\ Yet,
Treasury and the Federal Reserve's pricing terms and
requirements for the Municipal Liquidity Facility have been too
high and onerous for municipalities to participate. To what
extent will this have a disproportionate impact on black,
brown, and female workers, which make up a significant part of
the public sector workforce? What does Treasury plan to do to
mitigate these impacts?
---------------------------------------------------------------------------
\1\ https://www.brookings.edu/blog/the-avenue/2020/08/03/state-
and-local-governments-employ-the-highest-share-of-essential-workers-
congress-is-failing-to-protect-them/
\2\ https://www.epi.org/blog/without-federal-aid-many-state-and-
local-governments-could-make-the-same-budget-cuts-that-hampered-the-
last-economic-recovery/
A.3. Consistent with section 4003 of the CARES Act, the purpose
of the Municipal Liquidity Facility is to ensure that State and
local governments, and the financial system that supports them,
have access to liquidity. Following the expansion of the Money
Market Mutual Fund Liquidity Facility and the launch of the
Municipal Liquidity Facility, market access for State and local
government borrowing normalized after March, and primary market
borrowing costs fell substantially. With the Municipal
Liquidity Facility serving as an effective backstop, the
municipal bond market is now allowing State and local
governments ready access to liquidity at historically low rates
to finance their operations as they see fit. Neither market
rates nor Municipal Liquidity Facility rates are onerous, and
the Municipal Liquidity Facility reduced its rates on August 11
to ensure it continued to be an effective backstop to the
market.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM STEVEN T. MNUCHIN
Q.1. I'm worried about the long-term implications of the
Federal Government's elevated spending levels. A few weeks ago,
you told CNBC that ``Now is not the time to worry about
shrinking the deficit.'' When is that time, and why?
A.1. We are currently facing a large, negative output gap,
still-elevated unemployment levels, and historically low
interest rates. However, these circumstances will not last
forever, and as the economy recovers the output gap will get
closer to zero, unemployment will converge toward its natural
level, and interest rates may normalize; as these occur, the
critical role of deficit reduction will be more evident.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM STEVEN T. MNUCHIN
Q.1. The renewable energy sector, and in particular solar
energy, is suffering significantly from the COVID-19 pandemic.
I recently led a letter of support that a number of my
colleagues signed highlighting the need for help for renewables
whose projects have been put on hold on and where jobs have
been lost. I have heard from a number of solar energy companies
in North Carolina that they desperately need the ability to
monetize the Investment Tax Credit (ITC) in order to save
numerous projects that came to a halt because of the pandemic.
Can you commit to helping these clean energy companies?
A.1. As you know, on May 27, 2020, Treasury and the IRS issued
Notice 2020-41, which extends for 1 year the ITC continuity
safe harbor for solar energy projects on which construction
began in 2016 and 2017, and also provides relief for projects
relying on the 3\1/2\ month rule to start construction. At this
time, we are continuing to monitor the impacts of COVID-19 on
these projects and will consider additional extensions or
modifications as appropriate.
Q.2. A number of small and medium-sized businesses in North
Carolina are suffering due to COVID-19 related cutbacks in
Trade Credit Insurance (TCI). They tell me that providers of
TCI have significantly reduced coverage, which is making it
difficult for them to make sales and raise working capital.
They also tell me they could hire more people if the U.S.
Government established a backstop program that would enable the
TCI industry to restore coverage. Can you report back what you
are doing regarding this problem? Are you willing to expand any
of your existing programs or establish new programs to help
restore TCI coverage and help businesses in my State?
A.2. Treasury is monitoring TCI issues for small businesses and
other companies and looks forward to working with you and other
stakeholders to help respond to the challenges created by the
COVID-19 global pandemic.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM STEVEN T. MNUCHIN
Q.1. During our exchange at the hearing, you committed to
reviewing the terms of the Main Street program to identify what
changes could strengthen minority-owned business participation
and share that analysis with me. However, in response to
questions from the Congressional Oversight Commission at an
August 7th hearing, the Federal Reserve indicated that it,
``does not plan to collect information on the minority status
of borrowing entities.'' I believe collecting data on whether
small businesses are accessing the Main Street program is
critical to understanding whether minority businesses are using
the program and to properly modify the program so as ensure
minority businesses are benefiting from the program.
As part of reviewing the terms of the Main Street program,
will Treasury commit to collect data on the minority status of
borrowing entities?
A.1. We recognize the importance of minority-owned businesses
play in the economy during normal times and in the recovery
from the pandemic. The Main Street Lending Program is designed
to help credit flow to small and medium-sized for-profit
businesses and nonprofit organizations that were in sound
financial condition before the onset of the COVID-19 crisis and
have good postpandemic prospects, but now need loans to help
maintain their operations until they have recovered from, or
adapted to, the impacts of the pandemic. We continue to explore
options for adjusting the Program to meet the needs of more
small and medium-sized businesses and minority-owned
businesses, and on October 30, 2020, reduced the minimum loan
size for three Main Street facilities available to for-profit
and nonprofit borrowers from $250,000 to $100,000, as well as
adjusting the fees to encourage the provision of these smaller
loans. We are committed to supporting access to credit for
businesses that were in sound condition prior to the pandemic.
We will continue to monitor credit conditions for small and
minority-owned businesses to determine if additional
adjustments to the Program are needed.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM STEVEN T. MNUCHIN
Q.1. Do you support changes to the Municipal Liquidity Facility
to offer terms at least as good--such as lower interest rates,
deferred interest--as those offered in the Main Street Lending
Programs?
A.1. Treasury does not currently believe the terms of the
Municipal Liquidity Facility should be changed. The primary
market is functioning properly with historically low rates in
large part because the Municipal Liquidity Facility established
a backstop. State and local governments that seek bond
financing are able to issue new money or refund securities to
meet their borrowing needs. In the absence of market
dislocation, there is not a policy need for public credit to
displace readily available private credit.
Q.2. Do you support the language in the HEROES Act that lowers
the Municipal Loan Fund's interest rates to match the Fed Funds
Rate?
A.2. Treasury believes that the municipal market's recovery,
with the Municipal Liquidity Facility operating as an effective
backstop, already provides market access to issuers at rates
that are still historically low. It is not currently necessary
to reduce the facility rates further.
Q.3. How does current law prevent Treasury Department from
making changes to better assist asset-based businesses?
A.3. We recognize that, for asset-based borrowers, collateral
values or other factors are more indicative of the ability to
obtain credit than are cash flows, which underpin the existing
Main Street Lending Program borrower requirements. Our outreach
and monitoring indicate that some asset-based borrowers are
seeing a decline in their access to credit. However, these
borrowers appear to be largely in sectors with declining
collateral values or deteriorating longer-run prospects; a
lending program may not be able to address such problems.
Federal Reserve and Treasury staff continue to monitor lending
conditions broadly to assess the efficacy of existing
facilities. And we remain alert to the possibility that
conditions may warrant changes to the terms and conditions of
the Federal Reserve's emergency lending programs.
Q.4. Does Treasury plan to implement any extensions to the
Coronavirus Relief Fund timeline or changes to eligibility?
A.4. Treasury does not have administrative authority to extend
the period during which eligible Coronavirus Relief Fund
expenses must be incurred. Section 601(d)(3) of the Social
Security Act (added by Title V of the CARES Act) requires
eligible expenses to be incurred by December 30, 2020. Treasury
continues to respond to questions from recipients regarding the
eligible use of funds.
Q.5. How does Treasury plan to ensure that future business
support programs reach businesses that have fewer resources and
ability to apply?
A.5. Treasury looks forward to working with Congress on a
bipartisan basis to continue to provide much-needed relief to
businesses across the country.
Q.6. Will you open the aviation lending program to new
applicants if all the funds are not allocated?
A.6. Section 4003(a) of the CARES Act authorizes the Department
of the Treasury to make loans, loan guarantees, and other
investments to provide liquidity to eligible businesses,
States, and municipalities related to losses incurred as a
result of coronavirus. Section 4003(b)(1) provides up to $25
billion for loans to passenger air carriers and certain other
eligible businesses; Section 4003(b)(2) provides up to $4
billion for loans to cargo air carriers. Treasury received
approximately 200 applications and has worked as quickly and
transparently as possible to review each loan application,
conduct necessary due diligence, and finalize transaction
documentation. At this time, Treasury does not intend to reopen
applications for passenger air carriers, cargo air carriers,
and other eligible businesses.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
FROM STEVEN T. MNUCHIN
Q.1. Economic Impact Payments--As we discussed in the hearing,
nearly nine million Americans and 150,000 Alabamians still have
not received their $1,200 stimulus checks, 7 months after the
CARES Act passed.
There is an October 15, 2020, deadline to receive a
stimulus check and during the hearing I asked if you'd be
willing to push that date until December.
Was the Treasury Department and the Internal Revenue
Service able to allow for more time and change the deadline to
December to allow for Americans who have not received a
stimulus payment to apply through the nonfiler portal on the
IRS website?
A.1. The deadline to register for an Economic Impact Payment
(EIP) using the Internal Revenue Service's (IRS's) nonfiler
portal has been extended to November 21, 2020. This new date
will provide an additional 5 weeks beyond the original
deadline. This additional time is solely for those who have not
received their EIP and do not normally file a tax return. If
they miss the Nov. 21 deadline, they can still claim this by
filing a 2020 tax return early next year. For taxpayers who
requested an extension of time to file their 2019 tax return,
that deadline date remains October 15.
Q.2. Paycheck Protection Program (PPP)--Demographics: Last May,
I asked about if you'd work with the SBA Administrator to
require the collection of demographic information by banks who
made PPP loans. In response, you decided to make it optional.
According to the Center for Responsible Lending, little of
the $659 billion funding for the Paycheck Protection Program
made it to Latino and Black-owned businesses, despite being the
communities hit hardest by the crisis.
If the Paycheck Protection Program is reinstated, will you
require demographic information be collected?
A.2. Treasury and the Small Business Administration (SBA) are
committed to implementing the CARES Act with transparency and
accountability. Information regarding approved PPP loans and
program participation is regularly provided on our websites.
Updated information was posted after the program closed to new
loan applications on August 8, 2020. Treasury and SBA are
working to gather additional information on program
participants. The PPP Loan Forgiveness Application Form 3508S,
3508, and Form 3508EZ all request voluntary disclosure of
veteran status, gender, race, and ethnicity from loan
recipients.
Q.3. Outreach to Underserved Communities: At the hearing in
May, you said you were committed to serving the ``underserved
communities with the money you have left'' in the Paycheck
Protection Program. What did the Treasury Department and Small
Business Administration do to follow through on ensuring that
underserved communities were helped in getting PPP funds?
A.3. Treasury shares your interest in making the Paycheck
Protection Program (PPP) available to as many of America's job
creators and their employees as feasible and expects that
participating lenders will not discriminate against borrowers
that are otherwise eligible under PPP rules.
Since enactment of the CARES Act, Treasury and SBA have
worked closely with Congress, with borrowers, and with lenders
of all sizes--including regional and community banks, Community
Development Financial Institutions (CDFIs), and Minority
Depository Institutions (MDIs)--to ensure the broadest possible
segment of small businesses can access the PPP. Treasury and
SBA extensively recruited lending institutions that typically
operate in underserved communities to participate as PPP
lenders.
An important focus of our efforts to serve underserved
communities has been to harness the role of CDFIs and MDIs.
Hundreds of CDFIs were contacted and advised of their
eligibility to participate in the PPP. Guidance was issued to
all lenders asking them to redouble their efforts to assist
eligible borrowers in underserved and disadvantaged
communities. This was done to ensure that entities in
underserved and rural markets, including veterans and members
of the military community, small business concerns owned and
controlled by socially and economically disadvantaged
individuals, women, and businesses in operation for less than 2
years, all benefited from the PPP.
On July 30, 2020, Treasury and SBA participated in a
roundtable discussion with executives from MDIs; the discussion
focused on the MDIs' experiences as lenders in the PPP,
including their work to serve small businesses in low- and
moderate-income communities. As of August 8, 2020, when the PPP
closed to new loan applications, 432 MDIs and CDFIs had
participated from across the country, providing over 221,000
loans for more than $16.4 billion. The program resulted in $133
billion provided to businesses in Historically Underutilized
Business Zones, accounting for more than 25 percent of all PPP
funding.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM STEVEN T. MNUCHIN
Q.1. As you know, the commercial mortgage-backed security
(CMBS) market is under extreme pressure due to this pandemic.
Collapse of this market would be disastrous to Arizona
communities that rely on tourism and to the State pension
funds, endowments, retirement funds, college funds, and other
investment income tools that rely on the market. You have
repeatedly indicated it is not within your authority under the
Coronavirus Aid, Relief, and Economic Security (CARES) Act to
create a lending facility for CMBS borrowers.
Can you expand on your authority as it relates to creating
a new tailored facility?
A.1. Section 4003(b)(4) of the CARES Act authorizes Treasury to
make loans and loan guarantees to, and other investments in,
programs or facilities established by the Board of Governors of
the Federal Reserve System for the purpose of providing
liquidity to the financial system that supports lending to
eligible businesses, States, or municipalities. Treasury
continues to work with the Federal Reserve to assess the
efficacy of facilities established under the Federal Reserve's
13(3) emergency lending authority. Treasury does not have plans
at present to establish a new facility. Treasury continues to
monitor the market conditions for commercial real estate,
including for those borrowers whose loans are held in CMBS.
Q.2. Is it the market conditions that do not warrant changes,
or are you unable to make changes due to your authority or
structural limitations?
A.2. Treasury's authorities under 4003(b)(4) of the CARES Act
are primarily to facilitate the functioning of credit markets
by providing funds to support lending facilities established by
the Federal Reserve. These facilities provide liquidity to the
financial system and facilitate lending to a broad base of
businesses and nonprofit organizations.
Q.3. What other relief options are available to CMBS borrowers,
such as Arizona hoteliers?
A.3. Treasury continues to monitor CRE markets and to work
within its authorities to support households and businesses
impacted by the COVID-19 emergency. Data presently indicates
that an increasing number of distressed CRE borrowers whose
loans are held in CMBS have been granted temporary loan
forbearance, while many others have forbearance requests under
review by special servicers. CRE servicers can work with
investors to develop solutions for properties based on the
unique circumstances of each borrower.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM JEROME H. POWELL
Q.1. Congress gave Treasury and the Fed billions of dollars in
CARES Act money to support Main Street businesses, States and
local governments, and their workers. But instead of setting up
programs that protect jobs and get money to the businesses and
localities and tribes that need it most, Treasury has made it
too difficult and only a tiny fraction of the funds have been
used. Meanwhile, Treasury has been all too eager to approve
programs that help the biggest corporations without requiring
them to keep and pay their employees. How many workers at
companies that benefited from any of the emergency programs
established by Treasury and the Federal Reserve have lost their
jobs between March 15, 2020, and September 30, 2020?
A.1. Our purpose in undertaking the emergency lending
facilities was to support the availability of credit to
households, businesses, and State and local governments, and to
create an environment in which employers can maintain their
operational capacity so they can maintain and restore payroll.
A key component to this strategy was to restore liquidity to
markets and facilitate lending to small and medium-sized
businesses.
The Primary Market Corporate Credit Facility (PMCCF) and
the Secondary Market Corporate Credit Facility (SMCCF) were
established to support employment and spending of large, high
credit quality businesses. The stabilization of the corporate
bond market since March 2020 has helped large employers to
finance their operations effectively and to maintain employment
and payroll levels. Economic activity and employment have
continued to recover, although at a more moderate pace than in
the late spring and early summer 2020.
Due to the broad effects that the emergency facilities have
had on the U.S. economy, it is impossible to quantify their
exact effect on employment. However, after precipitous drops in
March 2020 and April 2020, and the announcement of the
emergency lending facilities, employment rose sharply during
the second half of 2020. As a result, of the roughly 22 million
jobs that had been lost, around half had been regained as of
the January 2021 payroll report. Job gains have slowed somewhat
in recent months as restrictions tightened in response to a
surge in COVID-19 cases. The unemployment rate has also fallen
significantly in recent months and was 6.3 percent in January
2021, well below the peak of 14.7 percent in April 2020. These
figures show both how much improvement the labor market has
seen since April 2020, and also how much further improvement is
needed.
COVID-19 has had a severe and lasting impact on many
sectors of the economy. Many of those suffering permanent job
loss are in industries that have been adversely affected by
COVID-19 and are likely to continue to struggle. Over time, a
process of reallocation will unfold and new opportunities will
open up. However, this process may take some time. In support
of our dual mandate of maximum employment and price stability,
the Federal Reserve is dedicated to using its full range of
tools to preserve the productive capacity of the U.S. economy
and create an environment in which the millions of Americans
who have lost work have the best chance to return to their old
jobs or find new ones.
Q.2. Many companies, without additional funding, may not make
it through the pandemic, ensuring many jobs won't exist a year
or two from now. What can the Federal Reserve do for workers at
companies that don't qualify for the Main Street Lending
Facilities but also do not qualify for a PPP loan?
A.2. The Main Street Lending Program (Main Street) was
established to support lending to small and medium-sized for-
profit businesses and nonprofit organizations that were in
sound financial condition before the onset of COVID-19. To meet
the needs of a broad range of borrowers and lenders and to make
the program more accessible to a greater number of businesses,
the minimum loan size for Main Street loans in three of the
five facilities was reduced from $250,000 to $100,000 on
October 30, 2020. In addition to lowering the minimum loan
size, the Federal Reserve increased the fees that lenders may
receive for originating and servicing loans with a principal
amount of $100,000 to $250,000 in recognition of the higher
relative costs associated with such loans. The increased fees
paid to lenders did not result in higher fees charged to
borrowers, as fees paid to and by the SPV were redirected to
lenders.
As you know, in accordance with section 1005 of the
Consolidated Appropriations Act, 2021, Main Street ceased
extending credit on January 8, 2021.
Q.3. Do FOMC projections of GDP and unemployment assume
additional fiscal aid or do they assume current conditions? Can
you describe the short-term and long-term impact on those
measures if Congress does not provide additional fiscal
stimulus?
A.3. The Summary of Economic Projections (SEP), most recently
released in December 2020, are a compilation of the projections
of each of the members of the Federal Open Market Committee
(FOMC). The individual projections, are based on each member's
views of appropriate monetary policy as well as their views of
the underlying condition of the economy, likely fiscal policy
actions, foreign economic developments, and a host of other
factors that may affect macroeconomic outcomes.
Consequently, projections of gross domestic product (GDP)
growth and the unemployment rate highlighted in the SEP were
based on a range of assumptions regarding fiscal aid. The
December 2020 FOMC Minutes do not indicate whether members had
built in additional fiscal aid into their projections, but the
Minutes do indicate financial markets were expecting action on
fiscal policy and that some participants thought that past
measures had ``provided essential support to many households''
and that additional aid would ``help businesses weather the
ongoing surge in the pandemic.''
My own view is that the support provided by fiscal policy
has been absolutely essential to replace the income lost by the
many millions who have been out of work due to the pandemic,
support small businesses that are trying to make it to the
other side of the pandemic, and State and local governments
that provide critical services.
Q.4. According to a recent Brookings Institute study, as many
as 1.5 million State and local government employees have been
laid off since the beginning of the COVID-19 crisis. \1\ This
is more State and local government jobs than were lost in the
entire financial crisis and ensuing recession. \2\ Yet,
Treasury and the Federal Reserve's pricing terms and
requirements for the Municipal Liquidity Facility (MLF) have
been too high and onerous for municipalities to participate. To
what extent will this have a disproportionate impact on black,
brown, and female workers, which make up a significant part of
the public sector workforce? What changes can the Federal
Reserve make to the MLF to mitigate these impacts?
---------------------------------------------------------------------------
\1\ https://www.brookings.edu/blog/the-avenue/2020/08/03/state-
and-local-governments-employ-the-highest-share-of-essential-workers-
congress-is-failing-to-protect-them/
\2\ https://www.epi.org/blog/without-federal-aid-many-state-and-
local-governments-could-make-the-same-budget-cuts-that-hampered-the-
last-economic-recovery/
A.4. The purpose of the Municipal Liquidity Facility (MLF) was
to enhance the liquidity of the primary short-term municipal
securities market through the purchase at issuance of Tax
Anticipation Notes (TAN), Tax and Revenue Anticipation Notes
(TRAN), Bond Anticipation Notes (BAN), Revenue Anticipation
Notes (RAN), and similar short-term notes from eligible
issuers. Following the announcement and implementation of the
MLF, conditions in the municipal bond market improved, with
spreads on general obligation bonds steadily decreasing and
primary issuance activity picking. By supporting the smooth
functioning of the municipal securities market after the onset
of the pandemic in the U.S., the Federal Reserve helped private
markets provide significant amounts of credit to municipal bond
issuers, thereby supporting communities across the Nation.
The Federal Reserve recognizes the important role minority
and female workers play in the economy as a whole, and public
sector in particular. It is important to note, however, that
our monetary policy tools and emergency facilities are not
designed to target particular groups of people or communities.
Rather, the way in which the Federal Reserve can best
contribute to addressing these problems is through the
steadfast pursuit of its statutory mandate to secure maximum
employment and price stability. This promotes a stable,
prosperous backdrop against which more targeted actions by
Congress and the Administration are likely to be most
effective.
Q.5. In the June 2020 Monetary Policy Report, the Federal
Reserve found that this economic crisis is having a devastating
impact on economic inequality. Job losses are significantly
greater among low-income workers and communities of color.
Federal Reserve data show that high-wage workers had lost only
a few percentage points of employment while low- wage workers
had seen declines in employment of 40 percent or more. Three
months later, workers are still struggling and we are facing an
eviction and foreclosure crisis.
Please provide the most recent Federal Reserve data on the
impact of this recession on economic and racial inequality.
Please explain how the Treasury and the Federal Reserve
plan to use the remaining hundreds of billions in CARES Act
equity to protect jobs and address economic and racial
inequality.
To what extent have the lending and bond purchase programs
exacerbated inequality by fueling a boom in financial markets
without corresponding support for employment and incomes among
workers?
A.5. As you note, the June 2020 Monetary Policy Report
contained estimates of employment losses for groups of workers
classified by their pre-COVID-19 wage levels; these estimates
were produced by the Federal Reserve Board (Board) staff using
data from the payroll processor ADP. Using more recent ADP
data, we continue to find that employment losses have been
largest among jobs at the bottom of the distribution of wages.
Specifically, the latest data show that, for jobs in the bottom
quartile of the pre-COVID-19 wage distribution, employment as
of early January 2021 was still nearly 20 percent lower than it
was in February 2020. For jobs in the two highest paying
quartiles, by comparison, employment was about 5 percent below
pre-COVID-19 levels.
While the ADP data do not contain information on worker
race or ethnicity, the effects of COVID-19 on inequality across
racial or ethnic groups can be seen in the official employment
statistics published by the Bureau of Labor Statistics (BLS).
For example, BLS data through January 2021 show that the
employment-to-population ratio for prime-age white workers was
4.1 percentage points lower in January 2021 than in February
2020. (The prime-age category is defined to include workers who
are 25 to 54 years old.) The corresponding decline in the
prime-age employment-to-population ratio for African American
workers over this period was 5 percentage points, and for
Hispanic workers it was 6.8 percentage points.
The emergency facilities created under section 13(3) of the
Federal Reserve Act have generally served to unlock credit
markets, allowing borrowers access to the credit they need to
finance their operations and maintain their payrolls. Several
of these facilities, including the PMCCF, SMCCF, MLF, Main
Street, and the Term Asset-Backed Securities Loan Facility
(TALF) were supported using funds allocated to the U.S.
Department of the Treasury (Treasury) in section 4003 of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
These facilities expired on December 31, 2020, following the
Treasury's decision not to extend them. Remaining funds were
returned to the Treasury. As Congress originally decided to
allocate these funds under section 4003, any decision to
reallocate these funds is also for Congress.
The Federal Reserve is committed to using its full range of
tools to foster a strong, broad-based economic recovery that
benefits our Nation as a whole. It is important to note,
however, that these tools cannot address the underlying causes
of racial injustice or income and wealth inequality. Rather,
the way in which the Federal Reserve can best contribute to
addressing these problems is through the steadfast pursuit of
its statutory mandate to secure maximum employment and price
stability. This promotes a stable, prosperous backdrop against
which more direct actions by Congress and the Administration
are likely to be most effective. It is not my role to recommend
particular actions outside the realm of monetary policy, but I
strongly support efforts by Congress and the Administration to
promote racial and economic justice.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM JEROME H. POWELL
Q.1. My understanding is that the net stable funding ratio
(NSFR) may be finalized before the end of the year. Some argue
that the proposed 2016 NSFR was based on flawed cost-benefit
analysis, miscalculated the impact of the rule on the financial
system, differed materially from other countries, and could
have increased volatility in the Treasury market in September
2016 and last March. Will the Federal Reserve address these
issues in the U.S. implementation of the NSFR rule, and if so,
how?
A.1. The Federal banking agencies finalized the net stable
funding ratio (NSFR) rule on October 20, 2020. As a measure of
the medium-term funding health of banks, the NSFR final rule
will complement and reinforce the liquidity coverage ratio
(LCR) rule, which addresses the risk of short-term cash
outflows in an acute period of stress.
The final rule includes several changes relative to the
proposal issued in 2016 based on further analysis and public
input on the proposal. We have tailored the scope of the NSFR
final rule in light of the Economic Growth, Regulatory Reform,
and Consumer Protection Act to align with the tailored scope of
application under the LCR rule because the two requirements are
designed to work together. Specifically, the final rule tailors
the stringency of the requirements based on a bank's risk
profile, with the most stringent requirements for the largest
and most complex banks and less stringent requirements for
banks with less risk.
In a change from the proposal, the final rule reduces the
stable funding requirements to zero for Treasury securities and
certain secured loans backed by Treasury securities. Carefully
weighing the micro- and macro-prudential benefits of a nonzero
stable funding requirement for these assets, the final rule
does not impose additional costs on banks and thus avoids
creating potential disincentives for them to participate in
these key financial markets. Additional changes from the
proposal include greater recognition of variation margin in
derivatives transactions, of the stability of certain affiliate
sweep deposits, and of nondeposit retail funding.
The impact analysis in the NSFR final rule improves on the
impact analysis in the proposal by comprehensively covering
intermediate holding companies of foreign banks. Based on data
from regulatory reports, as of the second quarter of 2020,
nearly all banks subject to the NSFR final rule would have had
sufficient stable funding to meet minimum NSFR requirements. As
of that date, in aggregate, banks held a surplus of about $1.3
trillion over their estimated NSFR requirements. We estimate
that, among all banks that would have had an NSFR shortfall in
that quarter, the total expected shortfall would have been
between $10 and $30 billion of stable funding. This amount is
small relative to the total stable funding of these banks.
Q.2. At the beginning of the year, the possibility of reviewing
the Federal Reserve's supervisory process to improve its
transparency was raised. I was pleased to see this because
supervisory guidance should never act like a rule and impose
binding constraints on banking organizations. Can you elaborate
on the Federal Reserve's plan to provide more transparency and
adhere to the rule of law for supervisory guidance? What is the
timeline for completing this process?
A.2. On October 20, 2020, the Federal banking regulatory
agencies invited comment on a proposal outlining and confirming
the use of supervisory guidance for regulated institutions. The
proposal would codify, as amended, a statement issued in
September 2018 by the agencies that clarified the differences
between regulations and guidance. Unlike a law or regulation,
supervisory guidance does not have the force and effect of law,
and we do not take enforcement actions or issue supervisory
criticisms based on noncompliance with supervisory guidance.
Rather, supervisory guidance outlines supervisory expectations
and priorities, or articulates views regarding appropriate
practices for a given subject area. Further, supervised
institutions at times request supervisory guidance, and such
guidance is important to provide insight on supervisory
perspectives and practices to industry and supervisory staff in
a transparent way that helps to ensure consistency in
supervisory approach. The proposal indicates that supervisory
criticisms (matters requiring attention or matters requiring
immediate attention) should continue to be specific as to
practices, operations, financial conditions, or other matters
that could have a negative effect on the safety and soundness
of the financial institution, could cause consumer harm, or
could cause violations of laws, regulations, final agency
orders, or other legally enforceable conditions. Comments on
the proposal were accepted through January 4, 2021, and staff
are carefully considering those comments as we draft the final
rule.
Q.3. When will the Federal Reserve update its scoping
mechanisms for SR letters, stress testing (e.g., CCAR's global
market shock and large counterparty default), recovery and
resolution planning, and other supervisory exercises in light
of the Federal Reserve's recently finalized tailoring
categories?
A.3. In 2019, the Federal Reserve Board (Board) finalized a
framework that sorts large firms into four different categories
of capital, liquidity, and enhanced prudential standards based
on their size and risk profiles. Under the tailoring framework,
the least stringent standards apply under Category IV to large,
noncomplex firms, and the most stringent standards apply under
Category I to U.S. Global Systemically Important Holding
Companies (U.S. GSIBs). \1\
---------------------------------------------------------------------------
\1\ See https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20191010a.htm.
---------------------------------------------------------------------------
In January 2021, the Board finalized a rule that would
update the Board's capital planning requirements to be
consistent with the tailoring framework. \2\ The Boards capital
planning requirements for these large banks help ensure they
plan for and determine their capital needs under a range of
different scenarios. In particular, firms in the lowest risk
category are on a 2-year stress test cycle and not subject to
company-run stress test requirements. The rule applies the
capital planning requirements to large savings and loan holding
companies that are not predominantly engaged in insurance or
commercial activities.
---------------------------------------------------------------------------
\2\ See https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20210119a.htm.
---------------------------------------------------------------------------
Along with the rule change, to align the Board's capital
planning guidance with the tailoring framework, staff
separately revised the capital planning guidance. As revised,
the Supervision and Regulation (SR) letter, SR 15-18, is now
applicable to firms subject to Category I standards, and SR 15-
19 is now applicable to firms subject to Category II or III
standards. The Board remains in the process of reviewing the
scope and applicability of other rules and SR letters that were
affected by the tailoring rules.
The Federal Reserve recognizes the importance of
transparency and accountability to both Congress and the
public.
Q.4. As I mentioned last February, one difficulty with
replacing LIBOR is that LIBOR has an embedded credit risk
element as an interbank rate, whereas SOFR is a risk-free rate
because it is essentially a repo rate. This mismatch could
create problems when banks fund themselves in an interbank
market that is subject to market conditions that SOFR may not
reflect. When I asked you about this problem you stated that
``a number of banks have come forward and said that they want
to work on a separate rate which would not replace SOFR but
would be credit sensitive'' and that you were open to that. Can
you provide an update on this process?
A.4. The Federal Reserve and other agencies have been deeply
engaged with stakeholders affected by the London Inter-Bank
Offered Rate (LIBOR) transition, including both banks and
borrowers. We have held a series of workshops to understand the
interest on the part of some regional banks in adding a credit
sensitive spread to Secured Overnight Financing Rate (SOFR).
Those workshops have made progress in better understanding the
issues involved so that both banks and borrowers can determine
plans for a smooth transition away from LIBOR.
In late October 2020, the U.S. Department of the Treasury
(Treasury), the Board, the Federal Reserve Bank of New York,
the Office of the Comptroller of the Currency (OCC), the
Securities and Exchange Commission (SEC), the Federal Deposit
Insurance Corporation (FDIC), and the Commodity Futures Trading
Commission (CFTC), sent a letter to a number of U.S. regional
banks noting that innovation is central to the development and
evolution of financial markets, and that the official sector
supports the continued innovation in, and development of,
suitable reference rates, including those that may have credit
sensitive elements. The Board, the FDIC, and the OCC
subsequently released supervisory guidance supporting continued
innovation in the development of robust reference rates. SOFR
is a robust alternative to LIBOR, but we have been clear that
its use is voluntary, and that market participants can use
other suitable replacement rates.
Q.5. As I mentioned last February, I have always been skeptical
of the Federal Reserve's proposal to develop its own real-time
payment system.
First, I am particularly concerned with the possibility
that we will end up with different payment systems that are not
interoperable. In response to my concern, you mentioned that
``full interoperability is the goal'' but ``it will be
challenging to reach it.''
Second, I am concerned that the Federal Reserve will not
provide a flat price to all participants in the payments
system, which could make it expensive for small banks to
participate. In response you said that the Federal Reserve has
not committed to flat pricing.
Can you provide an update on both issues?
A.5. The Federal Reserve is committed to advancing the goal of
interoperability for instant payments, but we cannot accomplish
it alone. Banks, bank service providers, and services operators
must work together towards a common goal to move the industry
forward. We have made significant progress, and the work we are
doing now lays a critical foundation for accomplishing
interoperability with The Clearing House's (TCH) Real-Time
Payments System (RTP).
We are currently designing the FedNow Service towards
compatible standards and operating procedures with RTP for the
initial launch of the FedNow Service. This will support
interoperability through ``routing,'' which paves the way for
nationwide access to instant payments and is highlighted as a
model for accomplishing interoperability by the U.S. Faster
Payments Council, an industry-led body dedicated to
facilitating broad adoption of instant payments. \3\
---------------------------------------------------------------------------
\3\ Routing is where the sending bank choses the path to the
recipient based on available options and other criteria, such as price
and features. The Faster Payments Council's white paper explores
different models for achieving payments interoperability and is
available at https://fasterpaymentscouncil.org/blog/2756/Faster-
Payments-Interoperability.
---------------------------------------------------------------------------
A key part of this design work is our commitment to using
the International Organization for Standardization (ISO) 20022
standard, which also is used by RTP and other payment systems
globally, for payment messages. Using this widely accepted
standard should remove barriers to interoperability, such as
unnecessary and burdensome incompatibilities imposed on banks
that choose to use both services. We are in the process of
finalizing our ISO specifications with input from an industry
group that includes financial institutions of all sizes and
service providers. We have also engaged with TCH on
specifications as part of our collaborative process. These
efforts are examples of how the industry can work together
toward a common goal of laying the foundation for
interoperability while also supporting choice through healthy
competition, one of the benefits of having more than one
instant payments provider in the market.
We also have heard the industry would like the Federal
Reserve and TCH to work towards interoperability based on
``message exchange'' where two payment services send payments
between each other, such as in automated clearing house (ACH)
today. Message exchange interoperability between the Federal
Reserve and TCH for ACH payments took years to accomplish due
to the technical, operational, and legal complexities involved
with connecting two services. We expect the same would be true
for instant payments. The Federal Reserve, however, is open to
interoperability through message exchange and equally
recognizes that such an approach will require significant
coordination between TCH and the Federal Reserve.
We have not yet determined the pricing that will be
applicable to the FedNow Service. The fee structure and
schedule will be informed by our assessment of market practices
at the time of implementation and will be published in advance
of the launch of the service.
Based on prevailing market practices, the Board expects
that the fee structure would include a combination of per-item
fees, charged to sending and potentially to receiving banks,
and fixed participation fees.
Q.6. The recently amended Federal Reserve Statement on Longer-
Run Goals and Monetary Policy Strategy, published on August 27,
2020, includes a new framework for a flexible form of average
inflation targeting, in which deviations from the longer-run
inflation rate goal of 2 percent will prompt policymakers to
aim for an equal opposite deviation for a period. Currently,
monetary policy rates are expected to remain lower for longer
than they would be historically because inflation has been
running below 2 percent in recent years. In February, the
Federal Funds Rate was lowered to 0 percent-0.25 percent to
respond to economic disruption stemming from the COVID crisis.
Are you concerned that holding the Federal Funds Rate at the
zero lower bound for an extended period, neutralizes its
ability to be used as a stimulus tool to combat a possible
economic downturn within this period?
A.6. As indicated in our public communications, we expect that
it will be appropriate to maintain the current target range for
the federal funds rate of 0 to 0.25 percent until labor market
conditions have reached levels consistent with the Federal Open
Market Committee's (Committee) assessments of maximum
employment and inflation has risen to 2 percent and is on track
to moderately exceed 2 percent for some time. This forward
guidance underscores the Committee's strong commitment to its
statutory goals of maximum employment and price stability, and
reflects the Committee's strategy to achieve these goals
articulated in the revised Statement on Longer-Run Goals and
Monetary Policy Strategy. By allowing inflation to moderately
exceed 2 percent for some time after it has persistently run
below 2 percent, the Committee aims to achieve an inflation
rate that averages 2 percent over time and longer-term
inflation expectations that are well-anchored at 2 percent.
Such a strategy does not imply that shortfalls of inflation
from 2 percent will be offset by equal and opposite deviations
under all circumstances. As always, the appropriate course of
monetary policy will continue to reflect a broad array of
considerations.
Holding the Federal funds rate near zero does not
neutralize our ability to respond to future economic downturns.
Maintaining accommodative conditions today helps ensure that
the economy will be on a stronger footing in the future if
faced with adverse shocks. In addition, our forward guidance
about the federal funds rate is outcome-based and focused on
the Committee's stated goals, so that the amount of policy
accommodation implied by that guidance increases automatically
when the economy needs it. For example, if the economic outlook
were to weaken, our existing guidance would imply a more
prolonged period of very low interest rates--and so would
further reduce longer-term interest rates, lowering borrowing
costs for businesses and households. Furthermore, were it
deemed necessary, the Federal Reserve has other means of
providing additional policy accommodation within its existing
toolkit, including by altering the size and/or composition of
its balance sheet.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM JEROME H. POWELL
Q.1. Does the Federal Reserve intend to implement Executive
Order 13924 of May 19, 2020, and implementing Memorandum M-20-
31 issued by the Office of Management and Budget on August 31,
2020, with respect to its administrative proceeding and
enforcement practices?
A.1. The Federal Reserve Board (Board), as an independent
agency, has implemented its practices regarding administrative
enforcement proceedings in a manner intended to promote
fairness. Consistent with the broad discretion vested in the
Board by law in implementing rules of its administrative
proceedings, the Board continues to review its practices to
ensure that its rules provide a fair, reliable, and expeditious
process for all respondents.
Q.2. The idea to either create a 13-3 facility or use funds
from an existing facility that would specifically be designed
to get liquidity to small business suppliers immediately is
something I have heard floated by policymakers and regulators
alike. Under this concept, larger corporates would have access
to a liquidity facility with a strict requirement to use funds
to pay their small business suppliers within 24-48 hours. Large
corporates have a vested interest in protecting their supply
chain so the take-up rate would likely be substantial and small
business suppliers who have accounts receivable from the larger
companies would get the money owed to them quickly instead of
seeing payment terms stretched out 60, 90, even 120 days. This
would address the liquidity crisis immediately and suppliers
would avoid a sometimes lengthy approval process. Can you
commit to continue to giving serious consideration to this
approach?
A.2. The Federal Reserve has used its emergency lending
authority under section 13(3) of the Federal Reserve Act to
help ensure creditworthy borrowers across all segments of the
economy have access to credit. We expanded our initial programs
and adopted new programs as necessary to help meet the credit
needs of the economy. In particular, the Main Street Lending
Program (Main Street) was created to support lending to small
and medium-sized for-profit businesses and nonprofit
organizations and was a viable option for small business
suppliers in need of liquidity.
As of January 8, 2021, and as required by statute, when the
program ceased making new purchases, the total outstanding
assets were approximately $16.6 billion.
It is important to note that our lending programs were
designed to be broad and not to engage in credit allocation to
particular segments of the economy.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM JEROME H. POWELL
Q.1. If Congress does not pass another large relief package
this year, would the economic outlook worsen relative to
current Federal Reserve projections?
A.1. The Coronavirus Aid, Relief, and Economic Security Act
(CARES Act) and other fiscal policy actions have provided
important direct help to families, businesses, and communities.
And the Coronavirus Response and Relief Supplemental
Appropriations Act is providing additional assistance. This
support has made a critical difference to helping both families
and businesses in a time of need, as well as limiting the
damage to our economy. The expiration of fiscal policy support
would tend to lower the economic outlook, all other things held
the same. Ultimately, however, it is the responsibility of
Congress and the Administration to decide on the appropriate
timing, size, and composition of additional fiscal stimulus.
Q.2. If so, what additional action could the Federal Reserve
take to fulfill its dual mandate in a timely manner?
A.2. There are multiple dimensions along which the Federal
Reserve could adjust its policy stance if we judged it
appropriate to fulfill the dual mandate. Throughout the current
crisis, we have provided extensive communications about the
future path of the Federal funds rate to ensure that monetary
policy will continue to deliver powerful support to the economy
until the recovery is complete. In September, we enhanced this
forward guidance by conveying that it likely would be
appropriate to maintain the current target range for the
Federal funds rate of 0 to \1/4\ percent until labor market
conditions have reached levels consistent with the Federal Open
Market Committee's (Committee) assessments of maximum
employment and inflation has risen to 2 percent and is on track
to moderately exceed 2 percent for some time. In December, we
enhanced our guidance regarding asset purchases. We said we
will continue to increase our holdings of Treasury securities
by at least $80 billion per month and of agency mortgage-backed
securities by at least $40 billion per month until substantial
further progress has been made toward the Committee's maximum
employment and price stability goals. These asset purchases
help foster smooth market functioning and accommodative
financial conditions, thereby supporting the flow of credit to
households and businesses.
Importantly, this combined forward guidance is outcome-
based and focused on our longer-run goals, so that the amount
of policy accommodation implied by that the guidance adjust
automatically when the economy needs it. For example, if the
economic outlook were to weaken, our existing guidance would
imply a more prolonged period of very low interest rates--and
so would further ease financial conditions. In response to
COVID-19, the Federal Reserve also deployed several credit
facilities--many of which under authority provided in section
13(3) of the Federal Reserve Act and in conjunction with the
U.S. Department of the Treasury--that were key to addressing
financial stresses and preventing COVID-19 from doing greater
damage to the financial system and economic activity. We
continue to closely monitor credit market conditions. In sum,
the Federal Reserve stands ready to deploy all of its policy
tools on the scale required to achieve its statutory goals of
maximum employment and price stability. At the same time, we
recognize that our actions are part of a broader public-sector
response, a point underscored by the important roles played by
fiscal and health policies in response to the current crisis.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR VAN HOLLEN FROM JEROME H. POWELL
Q.1. Chair Powell, when you last testified before the Banking
Committee, I asked you how when purchasing high-yield bonds
would help Main Street. You responded that those companies
employ thousands of people, so buying their bonds in effect
supports workers.
If you examine the Fed's Broad Market Index (since you last
testified) many of these companies have actually laid off
employees: Boeing, Disney, Caterpillar, to name just a few. At
the same time, many of these same companies continue to pay
dividends while they lay off workers. The Fed had the authority
under the CARES Act to impose proworker conditions on firms as
a condition of aid. Why didn't the Fed do so? Doesn't it
undermine public confidence in the Fed when the public sees
companies getting rescue money and then laying off workers and
paying dividends?
A.1. The Primary Market Corporate Credit Facility (PMCCF) and
the Secondary Market Corporate Credit Facility (SMCCF)
(together, the CCFs) were established to ensure that
creditworthy companies that rely on capital markets to fund
their operations had access to credit during last year's
unusual and exigent circumstances in which financial markets
experienced extraordinary disruptions, volatility, and
illiquidity. The U.S. Department of the Treasury supported the
CCFs with funds appropriated through the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act). Accordingly, the
CCFs complied with all applicable CARES Act provisions. Under
the terms and conditions of the PMCCF, and consistent with the
CARES Act, an eligible issuer in the PMCCF must have been
created or organized in the United States or under the laws of
the United States and must have significant operations in and a
majority of its employees based in the United States. Before
participating in the PMCCF, issuers were required to certify to
CARES Act requirements, such as the United States business
requirement and the conflicts of interest requirement under
section 4019 of the Act. As you are likely aware, in accordance
with section 1005 of the Consolidated Appropriations Act, 2021,
the CCFs ceased extending credit on December 31, 2020.
Q.2. Section 13(3) requires that emergency loans to
corporations have to be backed by collateral, and requires
that, quote,``the security for emergency loans is sufficient to
protect taxpayers from losses.'' 13(3) also requires the Fed to
establish that participants in any broad-based program or
facility must be, quote, ``unable to secure adequate credit
accommodations from other banking institutions.''
As of September 8th, three of the top four issuers in the
Federal Reserve's Secondary Market Corporate Credit Facility
are the U.S. financing arms of Volkswagen, Toyota, and Daimler.
The other top issuers include large corporations like Apple,
Verizon, AT&T, General Electric, and Microsoft.
Has the Fed actually established that these companies are
unable to secure adequate credit from banks? And has the Fed
secured guarantees or other collateral from the companies
themselves that is sufficient to protect taxpayers from losses
and, if so, how is that credit secured?
A.2. The Federal Reserve established the Secondary Market
Corporate Credit Facility (SMCCF) to support credit to
employers by providing liquidity to the market for outstanding
corporate bonds. The SMCCF did not extend new credit to U.S.
corporate issuers; rather, the facility purchased debt
instruments that already existed in the secondary market.
Through secondary market purchases, the SMCCF helped stabilize
the U.S. corporate bond market and improve conditions for new
issuances but did not directly transfer funds to specific
issuers. As such, and consistent with the Federal Reserve
Board's (Board) Regulation A, the Federal Reserve Bank of New
York obtained evidence of inadequate credit by evaluating
economic conditions in the U.S. corporate credit market, which
is the market that the SMCCF was intended to address. \1\
---------------------------------------------------------------------------
\1\ See 12 CFR 201.4(d)(8)(ii).
---------------------------------------------------------------------------
The SMCCF did not secure guarantees or collateral from
specific issuers. Instead, to meet the statutory requirement to
protect taxpayers from losses, the SMCCF is secured by all the
assets in Corporate Credit Facilities LLC, the special purpose
vehicle that is used to implement the SMCCF and Primary Market
Corporate Credit Facility (PMCCF). The assets in Corporate
Credit Facilities LLC include the market value of exchange-
traded fund holdings; the amortized cost of corporate bonds;
the equity investment from the U.S. Department of the Treasury
(Treasury) and related reinvestment earnings; cash equivalents;
and interest and other miscellaneous receivables. The value of
these assets substantially exceeds the amount of the Federal
Reserve extensions of credit in connection with the SMCCF and
PMCCF. In its monthly reports to Congress pursuant to section
13(3) of the Federal Reserve Act, the Federal Reserve has
provided updates on the total value of collateral pledged in
connection with the PMCCF and SMCCF. These reports are
available on the public website of Board. \1\
---------------------------------------------------------------------------
\1\ See https://www.federalreserve.gov/publications/reports-to-
congress-in-response-to-covid-19.htm.
---------------------------------------------------------------------------
As you know, the CCFs have been supported by funding from
the Coronavirus Aid, Relief, and Economic Security Act (CARES
Act), which assigns sole authority over its funds to the
Treasury Secretary, subject to the statute's specified limits.
The former Secretary has indicated that these limits do not
permit the CARES Act-funded facilities to make new loans or
purchase new assets after December 31, 2020.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM JEROME H. POWELL
Q.1. Do you support the language in the House-passed HEROES Act
that lowers the Municipal Loan Fund's interest rates to match
the Fed Funds Rate?
A.1. Response not received in time for publication.
Q.2. Is the Federal Reserve able to provide 6-month notes to
cash-strapped local governments and commit to rolling them over
for 20 years or more if a locality is unable to take on long-
term debt?
A.2. Response not received in time for publication.
Q.3. Can the Federal Reserve change the Municipal Lending
Facility to meet the needs of tribes?
A.3. Response not received in time for publication.
Q.4. Are there any plans to reallocate funds in the Municipal
Lending Facility or the Main Street Lending Facility?
A.4. Response not received in time for publication.
Q.5. How does current law prevent the Federal Reserve from
making changes to better assist asset-based businesses?
A.5. Response not received in time for publication.
Q.6. What does the Federal Reserve plan to do with the
remaining funds provided through the CARES Act if a relief deal
is not reached? Are there other ways you can use that money to
help the travel and tourism industry?
A.6. Response not received in time for publication.
Q.7. What changes can be made to the Main Street Lending
Program so it is viable for borrowers and encourages banks to
participate?
A.7. Response not received in time for publication.
Q.8. The Main Street Lending Program requires that banks share
security pari passu under the Boston Fed's Main Street program.
Have any banks been willing to concede part of their security
interests, and if so, what percentage of debt to value did the
secured loans cover?
A.8. Response not received in time for publication.
Q.9. Recently, the group Americans for Financial Reform
reported that the Federal Reserve is paying more for bond
purchases than the par value. If you look at the Fed reports on
its corporate bond purchases and loans under the CARES Act to
Congress, it seems the Fed overpays an average of 7 percent.
Please explain this discrepancy in payments and why the Federal
Reserve is paying more for bond purchases.
A.9. Response not received in time for publication.
Q.10. Why does the nonprofit loan facility impose certain
liquidity, asset, and reserve requirements that are not
required in Main Street New Loan Facilities available to for-
profit businesses?
A.10. Response not received in time for publication.
Q.11. The IRS includes a public support test on the annual Form
990 that requires nonprofits to maintain a rate above 33
percent--\1/3\--in order to ensure that nonprofits are relying
more heavily on donations from the public, rather than other
funding sources like investment income. Why does the Federal
Reserve's criteria require organizations to have revenues from
donations that are less than 40 percent, which would be a
significant barrier to many nonprofits who operate from
contracts but who also wish to be eligible for the loan
facility? Would the Fed consider eliminating this requirement
that no more than 40 percent of an organization's 2019 revenues
come from donations?
A.11. Response not received in time for publication.
Q.12. One of the eligibility criteria for borrowers is that
they must have ``a ratio of adjusted 2019 earnings before
interest, depreciation, and amortization (EBIDA) to
unrestricted 2019 operating revenue, greater than or equal to 2
percent.'' This criteria requires nonprofits to essentially
have a 2 percent profit. Nonprofits function in a model that
does not turn a profit, and where any surpluses are used fund
critical services to the public such as social services and
health research. Would the Fed consider eliminating this
requirement, which would be disqualifying for many nonprofits?
A.12. Response not received in time for publication.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
FROM JEROME H. POWELL
Q.1. Minority-Owned Small Businesses--Last month in Birmingham,
I hosted a roundtable with minority business owners,
entrepreneurs, and investors. I heard firsthand how hard it is
for minority business owners to get capital, including PPP
loans.
Congress passed the CARES act to help small businesses
weather the pandemic--yet the number of women and minority
businesses unable to access capital remains still distressingly
high. A survey in April found that of Black and Latino
businesses who applied for PPP loans, only 12 percent got PPP
loans and 41 percent were denied. The rest got partial
assistance or were still waiting to hear back.
What steps is the Federal Reserve taking to ensure that
minority businesses owners have access to capital while not
being forced to pay predatory rates?
A.1. The Federal Reserve appreciates the critical role that
small businesses play in our economy; they account for almost
half of all employees and more than half of all job growth. The
Federal Reserve is monitoring small business conditions,
including borrowing and lending activities, and is in active
conversation with small businesses across the country to better
understand their needs. In addition, staff are reaching out to
banks, credit unions, community development financial
institutions (CDFI), other nonprofit lenders, and small
business groups to gather insights on the current financial
challenges of small businesses across various industries, size,
markets, demographic and geographic characteristics. In
supporting economic stabilization and recovery throughout
COVID-19 and implementing the provisions of the Coronavirus
Aid, Relief, and Economic Security Act (CARES Act), we have
been focused on the credit needs of these important employers.
We have acted aggressively to stabilize financial markets and
bring interest rates down, which has directly helped small
businesses and their customers by supporting the recovery, in
particular to provide credit support to financial institutions
lending to small businesses through the Main Street Lending
Program (Main Street) and the Paycheck Protection Program
Lending Facility (PPPLF). \1\ To ensure that these programs
were responsive and effective, the Federal Reserve Board
(Board) made adjustments to ensure that the facilities were as
successful as possible in meeting the goal of supporting jobs
and the broader economic recovery while balancing risk to
taxpayer funds. \2\
---------------------------------------------------------------------------
\1\ For more information about these programs, see https://
www.federalreserve.gov/funding-credit-liquidity-and-loan-
facilities.htm.
\2\ See Press Release, ``Federal Reserve Board Adjusts Terms of
Main Street Lending Program To Better Target Support to Smaller
Businesses That Employ Millions of Workers and Are Facing Continued
Revenue Shortfalls Due to the Pandemic'', https://
www.federalreserve.gov/newsevents/pressreleases/monetary20201030a.htm.
Also see Press Release, ``Federal Reserve Expands Access to Its
Paycheck Protection Program Liquidity Facility (PPPLF) to Additional
Lenders, and Expands the Collateral That Can Be Pledged'', https://
www.federalreserve.gov/newsevents/pressreleases/monetary20200430b.htm.
---------------------------------------------------------------------------
To increase awareness and utilization of the these
programs, the Federal Reserve has conducted extensive outreach,
including a series of webinars, to ensure that eligible
institutions have the information needed to access the program.
These webinars have had over 10,000 registrations. In addition,
Federal Reserve System community development staff conducted
specific outreach with national organizations that support
CDFIs and minority depository institutions (MDI), including the
Opportunity Finance Network, the Community Development Banker's
Association, and the National Bankers Association to ensure
that MDIs and CDFI banks and loan funds are able to access the
PPPLF. Currently there are approximately 82 PPPLF participants
with outstanding balances that are either MDIs or CDFIs (or
both). This figure includes some nonbank CDFIs, entities with
which the Fed has not traditionally had lending relationships.
We are committed to continuing to conduct outreach as needed to
support the broadest possible access to the PPPLF by Paycheck
Protection Program (PPP) lenders.
With respect to concern about fair treatment in accessing
the facilities, the Federal Reserve's fair lending supervisory
and enforcement program reflects its commitment to promoting
financial inclusion and ensuring that the financial
institutions under our jurisdiction fully comply with
applicable Federal consumer protection laws and regulations.
The Equal Credit Opportunity Act and the Federal Reserve's
Regulation B's prohibition on lending discrimination applies to
all creditors and to all forms of credit, and includes credit
extended to small businesses, and the Federal Reserve evaluates
fair lending risk at every consumer compliance examination
based on the risk factors set forth in the interagency fair
lending examination procedures.
These procedures include risk factors related to potential
discrimination in pricing, underwriting, redlining, and
steering. If warranted by risk factors, staff conduct in-depth
analyses of a state member bank's underwriting policies and
practices. If there are concerns about a pattern or practice of
any type of lending discrimination, a bank is required to
provide additional data and information. For example, if the
risk profile of a bank warrants a more in-depth review of
particular loan products, a request for additional information
would be made to the bank to determine whether there is a fair
lending violation. This could include collection of
supplemental data items related to small business lending.
When exercising supervisory and enforcement
responsibilities in evaluating banks' lending activities during
COVID-19, the Board will take into account the unique
circumstances affecting borrowers and institutions during this
time. The Board will take into account an institution's good-
faith efforts demonstrably designed to support consumers and
comply with consumer protection laws. The Board expects that
supervisory feedback for institutions will be focused on
identifying issues, correcting deficiencies, and ensuring
appropriate remediation to consumers.
Q.2. Retail + Restaurant Industry Losses Due to the
Coronavirus--In May, you highlighted how many of the COVID
related job losses were in the lower paying service sector,
like in restaurants, hotels, tourism, and retail where you
interact with others.
The service sector remains especially hard hit as some
folks are hesitant to travel or eat out until there's a better
handle on the virus. In Alabama alone, 14,397 direct hotel-
related jobs have been lost since February. My State's lodging
tax loss is expected to be $105.2 million from diminished
travel during the coronavirus pandemic.
What do the Federal Reserve's economic models demonstrate
if Congress fails to act in meaningful way to help the retail,
entertainment, and restaurant industries?
Further, what do the Federal Reserve's economic models
demonstrate if Congress fails to provide another coronavirus
relief package without any additional economic impact payments
to households, assistance for State and local governments that
might be forced to lay off first responders, extending Federal
unemployment insurance for workers unable to return to work,
hazard pay for frontline workers, and streamlined loan
forgiveness for the Paycheck Protection Program (PPP)?
A.2. The CARES Act and other fiscal policy actions have
provided important direct help to families, businesses, and
communities--including both workers and employers in the
retail, entertainment, and restaurant industries. The
Coronavirus Response and Relief Supplemental Appropriations Act
is providing additional help. These two Acts have made a
critical difference to helping both families and businesses in
a time of need, as well as limiting the damage to our economy.
The expiration of fiscal policy support would tend to lower the
economic outlook, all other things held the same. Ultimately,
however, it is the responsibility of Congress and the
Administration to decide on the appropriate timing, size, and
composition of additional fiscal stimulus.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM JEROME H. POWELL
Q.1. As you know, the commercial mortgage-backed security
(CMBS) market is under extreme pressure due to this pandemic.
Collapse of this market would be disastrous to Arizona
communities that rely on tourism and to the State pension
funds, endowments, retirement funds, college funds, and other
investment income tools that rely on the market. You have
repeatedly indicated it is not within your authority under the
Coronavirus Aid, Relief, and Economic Security (CARES) Act to
create a lending facility for CMBS borrowers.
Can you expand on your authority as it relates to creating
a new tailored facility?
Is it the market conditions that do not warrant changes, or
are you unable to make changes due to your authority or
structural limitations?
What other relief options are available to CMBS borrowers,
such as Arizona hoteliers?
A.1. Although hotels, shopping malls, restaurants, and many
other businesses remain challenged or closed, lending programs
for particular industry sectors are outside the scope of the
Federal Reserve's powers. As a central bank, one of our core
principles is to avoid credit allocation. However, actions
taken by the Federal Reserve to support the broader economy
have alleviated some of the strains in the commercial real
estate market. More specifically, the Federal Reserve's
purchases of agency commercial mortgage-backed securities
(CMBS), as part of open market operations and the inclusion of
legacy CMBS as Term Asset-Backed Securities Loan Facility
(TALF)-eligible collateral, have improved spreads and liquidity
in the CMBS market.
The Consolidated Appropriations Act, 2021, amended the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
to require that, after December 31, 2020, the Federal Reserve
shall not make any new purchases under facilities that are
supported using funds allocated to the U.S. Department of
Treasury (Treasury) under the CARES Act. In addition, the
Consolidated Appropriations Act, 2021, rescinded the
appropriation authority for the unobligated portion of these
funds and limits the ability of the Treasury to use funds in
the Exchange Stabilization Fund. As part of its fiscal
provisions unrelated to Federal Reserve lending, the
Consolidated Appropriations Act, 2021, included support to
specific industries in the form of grants and investments,
including industries and businesses that remain challenged or
closed.
Q.2. Under the Main Street Lending Program, eligible nonprofits
must obtain no less than 40 percent of their donations from the
public, rather than other funding sources like investment
income. The Internal Revenue Service (IRS) only requires
nonprofits to maintain a rate above 33.33 percent. Some
nonprofits have claimed 40 percent is a significant barrier to
entering the Program. Why does the Federal Reserve maintain a
higher percentage of public donations than the IRS?
A.2. The nondonation revenues test was established to ensure
that nonprofit organizations that receive Main Street Lending
Program loans have stable sources of funding, such as longer-
term contracts or fees earned for services provided, to repay
the loan over time. This requirement is intended to address the
risk that the current uncertain economic situation may create
temporary or permanent shifts in philanthropy.
In response to public feedback to proposals released for
comment on June 15, 2020, the nondonation revenues requirement
was lowered from 70 percent to 60 percent of expenses. The
revised Nonprofit Organization New Loan Facility (NONLF) and
Nonprofit Organization Expanded Loan Facility (NOELF) term
sheets also amended the definition of ``donations'' to reduce
the stringency of this test and make it easier for nonprofit
organizations to calculate. Additionally, the term sheets apply
the test using a 3-year average to avoid disadvantaging
nonprofits that had a large, one-time donation in 2019.
We believe the revised nondonation revenues test
sufficiently balanced our desire to support the flow of credit
to nonprofit organizations that play a vital role in providing
critical services to our communities, while also safeguarding
taxpayer funds.
As you know, the NONLF and NOELF have been supported by
funding from the Coronavirus Aid, Relief, and Economic Security
Act (CARES Act), which assigns sole authority over its funds to
the Treasury Secretary, subject to the statute's specified
limits. The former Secretary indicated that these limits do not
permit the CARES Act-funded facilities to make new loans or
purchase new assets after December 31, 2020. In order to allow
more time to process and fund loans that were submitted to the
Main Street lender portal on or before December 14, 2020, the
Federal Reserve Board (Board) extended the termination date of
Main Street facilities to January 8, 2021.
The Board will continue to monitor conditions in financial
markets and the broader economy. We are prepared to use our
full range of tools to support the economy, maintain the flow
of credit to households and businesses, and promote our maximum
employment and price stability goals.
Q.3. During the September 24 hearing, you stated that the
Federal Reserve had expanded the number of national recognized
statistical rating organizations (NRSRO) the Facilities will
accept. It is my understanding that eligible businesses must
still have a rating from a major credit rating agency, even if
they have an acceptable rating from another NRSRO.
Can you detail this expansion?
Are businesses able to apply with and only with a credit
rating from an NRSRO that is not one of the major players?
Why is the Federal Reserve not treating all reputable
rating agencies equally as it relates to access to the
Facilities?
A.3. The Federal Reserve's emergency lending facilities were
established to help support the flow of credit to employers,
households, and businesses. In addition, under the Federal
Reserve Act, any loans extended by the Federal Reserve must be
satisfactorily and sufficiently secured to protect taxpayers
from loss.
The Federal Reserve's initial priority was to announce the
establishment of these facilities as quickly as possible, and
therefore the facilities first used credit ratings from just
the three largest nationally recognized statistical rating
organizations (NRSRO), given that the most widespread credit
ratings used are from these three NRSROs.
Consistent with our objectives to promote the flow of
credit in a manner consistent with the law, the Federal Reserve
undertook an analysis to determine whether to expand the list
of eligible NRSROs. As part of this analysis, the Federal
Reserve considered the design and focus of each facility, and
the role that each NRSRO plays in the relevant market.
Specifically, the Federal Reserve sought to balance the
benefits of using ratings from the NRSROs most relied on by
investors with the need to ensure broad access to our programs.
That analysis led the Federal Reserve to include three
additional NRSROs in its facilities along with the three
largest NRSROs. The approach taken by the Federal Reserve, in
continuing to require a rating from one of the three largest
NRSROs, balances the investor usage of these three NRSROs with
the benefit of expanding eligibility to other NRSROs that are
used by investors to a material extent in a way that is
relevant for each of our facilities.
While we understand the interest in ensuring that no
distinctions are made among registered NRSROs, inclusion of all
NRSROs would have impaired, not improved, the effectiveness of
the facilities. If we had included all NRSROs, absent any other
eligibility criteria, we would accept ratings issued by NRSROs
that are not used to a material extent by investors in that
market. Accordingly, we may have needed to include additional
eligibility criteria, or conduct additional credit
underwriting, to ensure that taxpayers are protected from
losses and that we are satisfactorily secured.
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