[Senate Hearing 116-412]
[From the U.S. Government Publishing Office]
S. Hrg. 116-412
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
__________
DECEMBER 1, 2020
__________
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
43-445 PDF WASHINGTON : 2021
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, Senior Counsel
Brandon Beall, Professional Staff Member
Elisha Tuku, Democratic Chief Counsel
Corey Frayer, Democratic Professional Staff Member
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
Jim Crowell, Editor
(ii)
C O N T E N T S
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TUESDAY, DECEMBER 1, 2020
Page
Opening statement of Chairman Crapo.............................. 1
Prepared statement........................................... 45
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 3
Prepared statement....................................... 46
WITNESSES
Steven T. Mnuchin, Secretary, Department of the Treasury......... 6
Prepared statement........................................... 48
Responses to written questions of:
Senator Brown............................................ 53
Senator Tillis........................................... 53
Senator Cortez Masto..................................... 54
Senator Sinema........................................... 55
Jerome H. Powell, Chairman, Board of Governors of the Federal
Reserve System................................................. 8
Prepared statement........................................... 48
Responses to written questions of:
Senator Toomey........................................... 56
Senator Menendez......................................... 58
Senator Cortez Masto..................................... 58
Additional Material Supplied for the Record
Statement of CUNA, submitted by Chairman Crapo................... 61
Statement of NAFCU, submitted by Chairman Crapo.................. 64
Statement of NAR, submitted by Chairman Crapo.................... 68
Treasury response, submitted by Senator Menendez................. 70
KTKR article, submitted by Senator Warner........................ 76
(iii)
THE QUARTERLY CARES ACT REPORT TO CONGRESS
----------
TUESDAY, DECEMBER 1, 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 via Webex, Hon. Mike Crapo,
Chairman of the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. This hearing will now come to order.
This hearing is in 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 which you should all be very familiar with at this
point.
Once you start speaking, there will be a slight delay
before you are displayed on the screen. To minimize background
noise, please click 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.
Once again, I remind all Senators and our witnesses that
the 5-minute clock still applies. Those remote should have on
your screen one of the boxes labeled ``Clock'' that will show
how much time is remaining. We have had some trouble getting
those boxes on everybody's screen, apparently, or at least
getting everybody to be able to find them and follow them. And
so we are going to continue a practice that we started at the
last hearing. At 30 seconds remaining, you will hear a bell
ring to remind Senators that their time is almost expired. I
encourage the Senators and our witnesses to recognize that bell
and wrap things up on the answers as well as the questions in
time to keep within the 5 minutes.
To simplify the speaking order process, Senator Brown and I
have again agreed to go by seniority in this hearing.
Today we welcome the witnesses to the Committee to provide
testimony as required under Title IV of the CARES Act. Our
witnesses are: 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.
On November 19, Treasury Secretary Mnuchin requested for
the Federal Reserve to return unused funds that had been
appropriated under Title IV of the CARES Act for 13(3)
facilities and direct loans.
I agree with Secretary Mnuchin on the success of the 13(3)
facilities and the termination language in the CARES Act.
The 13(3) facilities funded under the CARES Act were
effective and fulfilled their purpose to stabilize markets,
facilitate credit flow, and provide liquidity.
The Wall Street Journal editorial board summed it up well:
``All of these programs were created in an emergency at the
onset of the pandemic when the financial markets were in danger
of melting down.''
Adding that, ``The programs worked. Even as the pandemic
and Government shutdowns have waxed and waned, financial
markets have healed. Lending spreads have fallen, and liquidity
is ample in nearly all markets.''
The most recent Federal Reserve Financial Stability Report
pointed to some of these successes.
It said, ``the announcements of the Primary Market
Corporate Credit Facility, Secondary Market Corporate Credit
Facility, and Municipal Liquidity Facility in late March and
early April led to rapid improvements in corporate and
municipal bond markets well ahead of the facilities' actual
opening.''
The report also said, ``Since the announcement of the
backstop facilities and funding market stabilization measures,
more than $1 trillion in new nonfinancial corporate bonds and
more than $250 billion in municipal debt have been issued,
purchased almost entirely by the private sector.''
With respect to asset-backed securities, the report noted
that, ``Similar to other backstop facilities, while outstanding
balances in the Term Asset-Backed Securities Facility have
remained modest, spreads in the asset-backed securities market
have narrowed considerably, and private market issuance has
resumed.''
With just 1 month until the December 31 termination date,
only $195 billion of the $454 billion needed to be allocated to
the 13(3) facilities, and those facilities have not been
extensively used to date.
Returning the unused $455 billion to Treasury now allows
those funds to be made available for other important purposes,
such as providing more targeted relief to sectors of the
economy that need it most or to reducing the national debt.
The CARES Act funding supporting these facilities was
always intended to be temporary.
Additionally, as was mentioned in both Secretary Mnuchin
and Chairman Powell's letters, the Exchange Stabilization Fund
still has non-CARES Act funds that are available, to the extent
permitted by law, to capitalize any Federal Reserve lending
facilities as needed.
In fact, the Fed has four facilities that were set up with
non-CARES Act funds, including the commercial paper facility
and money market liquidity facility.
Although COVID-19 continues to spread across the United
States and the world, there is hope in the economic recovery
that we have seen so far and in the reports of promising,
highly effective vaccine trials.
However, we continue to look to steps that we can take to
help Americans and businesses that need it the most.
Republicans have tried for months to get another targeted,
bipartisan COVID relief package passed and signed into law to
provide support for those in need, but Democrats have rejected
those efforts.
It is time to find agreement where we can on a targeted,
bipartisan basis to provide relief.
Turning for a moment to regulations, the CARES Act included
other meaningful pandemic-related programs to provide relief to
Americans.
I have heard from banks and credit unions concerned about
breaking through regulatory thresholds that stand to impose a
much greater regulatory burden due to the temporary growth they
have experienced from customer deposits and participation in
pandemic-related programs, like the Paycheck Protection Program
and the Economic Impact Payments.
On November 20, the Fed, FDIC, and OCC took an important
step to mitigating banks' regulatory burden by giving community
banks under $10 billion more flexibility to use their asset
size on December 31, 2019, for applying various regulations.
I appreciate the banking agencies taking this action, which
will foster a more certain regulatory environment for these
banks and incentivize their participation in future pandemic-
related programs, should they be needed.
Secretary Mnuchin, as you know, housing finance reform
remains a top priority of mine, and last year I released a
housing reform outline which builds upon many of the same
principles from previous efforts.
While my preference was for Congress to pass a bipartisan
deal, it is long past time to make the hard decisions and
address this last unfinished business of the financial crisis.
Because of that I would encourage you and the Director of
the FHFA to continue to take important steps that move the
system in the right direction. The status quo continues to be
unacceptable.
I want to thank each of you for joining the Committee today
to discuss the CARES Act and other critically important issues.
Before I turn to Senator Brown for his opening, I also want
to take some time to thank both Senators McSally and Jones for
their contribution and time to this Committee.
I have enjoyed working with them, spending time with them,
and getting to know them, and they will be missed. I wish you
both the best.
And, finally, I want to thank Senator Brown and his staff
for the time we have worked together on this Committee.
I have appreciated our time together on this Committee, and
our friendship, even if at times we may not have seen eye to
eye.
Senator Brown.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman. Welcome, Secretary
Mnuchin and Chairman Powell. Good to have both of you here.
I would like to second what Chairman Crapo just said. I
want to thank Doug Jones and Martha McSally for their service
on this Committee. They both contributed a great deal. Thank
you.
And since this is Chair Crapo's last hearing of this
Committee, I believe, thank you for your leadership, decency,
and patience. Mike, you can run but you cannot hide--since I
also serve with you, obviously, on the Finance Committee.
I want to thank your Staff Director, Gregg Richard, for his
work and the rest of your staff, Laura in our office, and
working together has been really meaningful and productive.
We have worked together to deliver results--working to
strengthen our review of foreign investment, to hold Russia and
North Korea accountable, to give American manufacturers the
tools they need to compete through a strong Ex-Im Bank, and to
continue to protect our communities from terrorism attacks. I
look forward next year to working with our colleague Senator
Toomey on these and other issues.
I also appreciate Chair Crapo and his staff's work to hold
so many of our hearings virtually during this pandemic.
Protecting the people who work in the Capitol from this virus
should not be a partisan issue. On this Committee it largely
has not been. I wish I could say the same throughout this
building and throughout the Senate. It is something I wish
there were more of with our Government.
Chair Powell and Secretary Mnuchin, in the 2 months since
you were last here, the situation around the country has only
gotten worse. The virus is spreading unchecked, job losses are
up, economic growth is declining.
The number of new daily COVID-19 cases is up four-fold;
daily deaths have more than doubled. In many parts of the
country, the case numbers and hospitalizations are worse than
in the spring.
I spent much of yesterday talking to hospital leaders
around my State. All feel besieged. All are doing their work.
The health care workers surely, as we know, are heroes. We
simply do not give them enough support.
Just last week, 748,000 people filed for unemployment
insurance. Millions more have been out of work since April.
In October, 3.4 million homeowners were past due on their
mortgages. Many of them will run out of forbearance options by
April. As many as 40 million renters will spend the holidays
worrying that they will be evicted on January 1st if their
Government--if we do not--if their Government does not do its
job.
Behind all these numbers are real families who are doing
their best, trying to figure out how to get by. During
Thanksgiving week, there were hours-long lines at food banks
across the country.
This is an extraordinary crisis that requires extraordinary
action. We have had a President who has simply given up on
leading the country.
And as far as I can tell, Secretary Mnuchin, you are
leaving the country worse off than you found it.
With that record, it is pretty obvious why 80 million
Americans voted for new leadership, a decisive margin.
And rather than using your final months in office to work
for the people whom you have sworn to serve, you appear to be
trying to sabotage our economy on the way out the door.
After the election, you canceled the Federal Reserve
lending programs, taking away critical tools to invest in the
people and the communities and the small businesses that make
this country work.
There is no legitimate justification for it.
I met yesterday with 60 restaurant owners remotely, by
Zoom, 60 restaurant owners in this State, my State. All of them
are struggling, as you know.
Either you are purposely trying to stop President-elect
Biden and Treasury Secretary Designee Yellen from getting to
work for the people we all serve, or you are delusional that
you think because the stock market is up--and I understand
taking the lead from the President that when the stock market
is up, everything is fine.
Either way, it is malpractice.
It was only the end of October when you finally reduced the
minimum loan size for the Main Street program to $100,000 so
the program would actually work for small businesses and
communities. But now, after all the waiting and adjusting, the
Main Street program finally gets going, and you take away
another tool to help American businesses and workers.
Even the policy head at the Chamber of Commerce said that
shutting down the emergency lending programs ``closes the door
on important liquidity options for businesses at a time when
they need them most.''
It is always the same story. As you know, Mr. Secretary,
when the biggest banks and the largest corporations need help,
their allies in Washington spring into action. But when the
rest of the country needs investment and support, you want to
pretend we just cannot afford it.
You cited congressional intent as a flimsy justification
for your decision.
I can tell you right now, we did not intend for struggling
businesses to have to wait over 3 months to have access to the
lifeline provided in the CARES Act; we did not intend for the
loan requirements terms to be amended several times; we
certainly did not intend for the legislation passed in March to
be the only efforts the United States of America would take to
fight a once-in-a-generation crisis.
Anyone who has watched the news at all in the last month
would know this is the time for action, not for retreat.
We are watching hospitals fill up again. Our health care
system is overwhelmed. Gig workers and self-employed workers
will lose their unemployment insurance just in 5 weeks--4
weeks. Small businesses and local governments are running out
of money.
It did not have to be this bad.
We have the world's largest, greatest economy. We have the
resources to rise to meet the challenge.
But, Secretary Mnuchin, you appear to believe this is the
best we can do.
In this election, Americans made it clear that they did not
buy that.
They have had enough of aiming low, of being told ``we
cannot afford it, we cannot solve problems, we cannot govern,
we cannot do this.''
We know we can do better. We have done it before.
Remember what Bill Spriggs in front of this Committee said
in September. We did not win World War II by worrying about
whether or not we could afford it. We were in a global crisis.
We marshaled all of our vast resources and talent to rise to
meet it. We grew the economy from the middle class out; we paid
down the debt with rising wages.
And if we have learned anything from this crisis, it should
be that we can do the same thing again.
Remember what we did in March? Unanimously, Mr. Chairman,
we came together, we took action, and it made a real difference
in people's lives. In the face of mass layoffs, we put money in
people's pockets. We helped them pay their bills. We kept
spending in this economy. We kept 13 million people out of
poverty.
Those restaurant owners yesterday in Ohio said their
situation is more perilous today than it was back in February
and March and April and May. So it means that we should do a
comparable kind of action.
And what we did in March helped everyone, including the
stock market that you love to brag about.
There is no reason--other than a lack of political will--
that we cannot do the same.
A worker who is about to lose her job does not care about
the date on the calendar or who is sitting at the Secretary's
desk. They care about results.
Secretary Mnuchin, if you and President Trump will not
deliver them, the least you can do is get out of the way.
I know Chair Powell has been clear in previous hearings
that we need more stimulus to have any chance at a real, broad
economic recovery. We need a big stimulus package, one that
reaches beyond Wall Street--the sort of emaciated McConnell
version reached beyond Wall Street--to Main Streets in
Cleveland and Boise and Scranton and all over this country, and
that shows up in people's paychecks, not just corporate balance
sheets.
I hope today the American people will get reassurance that
the Federal Reserve will be part of that effort.
It is time for all of us to use every tool available to
rise to meet this challenge.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you, Senator Brown.
We will now proceed to our witnesses. We will go in the
order I introduced you, and, Secretary Mnuchin, you may
proceed.
STATEMENT OF STEVEN T. MNUCHIN, SECRETARY, DEPARTMENT OF THE
TREASURY
Secretary Mnuchin. Thank you. Chairman Crapo, Ranking
Member Brown, and Members of the Committee, I am pleased to
join you to discuss the Department of Treasury's unprecedented
response to support the American people throughout the
coronavirus pandemic. We continue to work to implement the
historic CARES Act with speed, efficiency, and transparency,
but our job will not be complete until every American gets back
to work.
When I last testified before you in September, I stated
that America was in the midst of the fastest economic recovery
from any crisis in U.S. history. I am proud to say that while
there is more work to be done, that statement is even more true
today. In the third quarter, GDP grew by 33 percent at an
annual rate, beating all expectations and nearly doubling the
previous record set in 1950.
Americans are getting back to work. The October jobs report
showed that the economy has gained back 12 million jobs since
April--more than 50 percent of all lost jobs due to the
pandemic. The private service sector, which includes those
industries that were impacted by the initial economic
shutdowns, has regained 58 percent of the lost jobs. The
unemployment rate decreased to 6.9 percent, a rate not expected
to be achieved until the fourth quarter of 2021.
The historic, bipartisan CARES Act provided the economic
relief critical to supporting our robust economy. Additional
economic shutdowns, however, continue to impair this remarkable
progress and cause great harm to American businesses and
workers.
Based upon the recent economic data, I continue to believe
that a targeted fiscal package is the most appropriate Federal
response. I strongly encourage Congress to use the $455 billion
in unused funds from the CARES Act to pass an additional bill
with bipartisan support. The Administration is standing ready
to support Congress in this effort to help American workers and
small businesses that continue to struggle with the impact of
COVID-19.
Treasury has been working hard to implement the CARES Act
in a transparent and efficient manner. 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.
We continue to cooperate with various oversight bodies,
including the new Special Inspector General, the Treasury
Inspector General, the Treasury Inspector General for Tax
Administration, the new Congressional Oversight Commission, and
the GAO.
We have provided regular updates to Congress, with this
marking my eighth appearance before Congress for a CARES Act
hearing. We have also devoted significant resources to
responding to numerous congressional committees and individual
members of Congress on both sides of the aisle. We appreciate
your interest in these issues. We remain committed to working
with you to accommodate Congress' legislative requests and to
further advance our whole-of-Government approach to defeating
COVID-19.
I would like to thank the Members of the Committee for
working with us to provide critical economic relief to the
American people, and I am pleased to be here to answer any
questions.
Chairman Crapo. Thank you.
Chairman Powell.
STATEMENT OF JEROME H. POWELL, CHAIRMAN, BOARD OF GOVERNORS OF
THE FEDERAL RESERVE SYSTEM
Mr. Powell. 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.
Our public health professionals continue to deliver our
most important response, and we remain grateful for their
service.
The Federal Reserve, along with others across Government,
is using its policies to help alleviate the economic burden.
Since the pandemic's onset, we have taken forceful actions to
provide relief and stability, to ensure that the recovery will
be as strong as possible, and to limit lasting damage to the
economy.
Economic activity has continued to recover from its
depressed second-quarter level. The reopening of the economy
led to a rapid rebound in activity, and real GDP rose at an
annual rate of 33 percent in the third quarter. In recent
months, however, the pace of improvement has moderated.
Household spending on goods, especially durable goods, has
been strong and has moved above its prepandemic level. In
contrast, spending on services remains low largely because of
ongoing weakness in sectors that typically require people to
gather closely, including travel and hospitality.
The overall rebound in household spending is due, in part,
to Federal stimulus payments and expanded unemployment
benefits, which provided essential support to many families and
individuals.
In the labor market, more than half of the 22 million jobs
that were lost in March and April have been regained, as many
people were able to return to work. As with overall economic
activity, the pace of improvement in the labor market has
moderated. Although we welcome this progress, we will not lose
sight of the millions of Americans who remain out of work. The
economic downturn has not fallen equally on all Americans, and
those least able to shoulder the burden have been hardest hit.
In particular, the high level of joblessness has been
especially severe for lower-wage workers in the services
sector, for women, and for African Americans and Hispanics. The
economic dislocation has upended many lives and created great
uncertainty about the future.
As we have emphasized throughout the pandemic, the outlook
for the economy is extraordinarily uncertain and will depend,
in large part, on the success of efforts to keep the virus in
check.
The rise in new COVID-19 cases, both here and abroad, is
concerning and could prove challenging in the next few months.
A full economic recovery is unlikely until people are confident
that it is safe to reengage in a broad range of activities.
Recent news on the vaccine front is very positive for the
medium term. For now, significant challenges and uncertainties
remain, including timing, production, and distribution, and
efficacy across different groups. It remains difficult to
assess the timing and scope of the economic implications of
these developments with any degree of confidence.
The Fed's response has been guided by our mandate to
promote maximum employment and stable prices for the American
people, along with our responsibilities to promote the
stability of the financial system. We have been taking broad
and forceful actions to more directly support the flow of
credit in the economy. Our actions, taken together, have helped
unlock almost $2 trillion of funding to support businesses
large and small, nonprofits, and State and local governments
since April. This, in turn, has helped keep organizations from
shuttering and has put employers in a better position to keep
workers on and to hire them back as the economy continues to
recover.
These programs serve as a backstop to key credit markets
and have helped restore the flow of credit from private lenders
through normal channels. We have deployed these lending powers
to an unprecedented extent. Our emergency lending powers
require the approval of the Treasury and are available only in
very unusual circumstances, such as those we find ourselves in.
Many of these programs have been supported by funding from the
CARES Act, and I have included detailed information about those
facilities in my written testimony.
The CARES Act assigns sole authority over its funds to the
Treasury Secretary, subject to the statute's specified limits.
The Secretary has indicated that these limits do not permit
CARES Act-funded facilities to make new loans or purchase new
assets after December 31 of this year. Accordingly, the Federal
Reserve will return the unused portion of funds allocated to
the lending programs that are backstopped by the CARES Act in
connection with their termination at the end of the year. As
the Secretary noted in his letter, non-CARES Act funds in the
Exchange Stabilization Fund are available to support emergency
lending facilities if they are needed.
Everything the Fed does is in service to our public
mission. We are committed to using our full range of tools to
support the economy and to help assure that the recovery from
this difficult period will be as robust as possible on behalf
of communities, families, and businesses across the country.
Thank you.
Chairman Crapo. Thank you, Chairman Powell.
My first question I think will be toward you, Secretary
Mnuchin. I am actually quite surprised to hear you criticized
for following the law in how you have dealt with the return of
the CARES Act funds. We were in the room together negotiating
these provisions as the CARES Act was created. And,
interestingly, it seems to me that the real problem here is--
well, you will recall you and we were accused of creating a big
slush fund, and now when we have terminated these funds as
required by the law so that we can utilize them more
effectively in the next act, the criticism is that this fund
should not have been terminated.
I just find that kind of confusing. That is also confusing
in the context of the fact that we have tried to gut the very
kind of relief in follow-up legislation that we have now been
criticized for not doing just a few months ago: extending
things like the Paycheck Protection Program which would help
though restaurant workers that Senator Brown mentioned;
extending and improving it, by the way; redirecting some of
these funds so that we get to those industries and sectors of
our economy that have not yet been reached by the 13(3)
facilities and really need to have a different kind of direct
support system put into place for them; adding rental
assistance that we need to have, in my opinion, and which I
have been working very hard on to try to get. And as we tried
to get these things, they were rejected by the other side, and
so it is just confusing to me or a little bit surprising to see
these kinds of attacks leveled today in this hearing.
And so, Secretary Mnuchin, could you just help make a
little sense from your point of view as to why the decision to
make the return of these funds away from the 13(3) facilities
at this time is the best thing and what the intent that you had
was in making that termination?
Secretary Mnuchin. Thank you, Mr. Chairman. And let me
first say I want to thank the Senate for passing the CARES Act,
which was 96-0 in an unprecedented response. And as you know, I
lived in the LBJ Room for over 2 weeks, so I am very familiar.
I personally negotiated many of these provisions. As a matter
of fact, I brought the CARES Act with me because I reference it
and keep it next to my desk, and, Mr. Chairman, I would just
ask you to recall, you and I were sitting outside Senator
Schumer's office with his staff. It was after 1 a.m. in the
morning on the night that we finally finished this, and I asked
you to come to sign off on behalf of the Leader and others the
final red lines. We went through this very carefully. So I
would direct you to Section 4029, which is very clear, which
says: ``Except as provided in subsection (b), on December 31,
2020, the authority provided under this subtitle . . . shall
terminate.'' It was very clear.
So my decision--first of all, I want to thank Chair Powell
because he has been a terrific partner in everything we have
done, and I really want to thank him and the people at the Fed.
He and I have been speaking constantly. In deference to him, I
did extend four of the facilities that used non-CARES money. My
decision not to extend these facilities was not an economic
decision. I am surprised to hear Senator Brown use words like
``sabotage,'' ``no legitimate justification,'' ``delusional,''
``malpractice,'' ``time for action.'' I would be more than
happy, Senator Brown, to come see you and your staff and walk
you through the legal analysis. But this is perfectly clear.
The Senate provided unprecedented authority to the Secretary of
the Treasury in giving me $500 billion. The statute was very
clear. As a matter of fact, I find it implausible that any
Member of this Committee believed that in voting for the CARES
Act you were authorizing me to invest $500 billion to make
loans in perpetuity.
So if you do not read this as there is an expiration, then
you must read this that there was a loophole in the law that I
could invest the $500 billion forever, had I committed it up
front, and I do not believe that was the intent.
I would also just conclude I echo what Senator Brown said
about restaurants. The President and I believe that restaurants
have been unfairly targeted, and I would urge Congress to
support another $300 billion for PPP. This would have a real
impact. These restaurants need grants. They do not need loans.
Thank you.
Chairman Crapo. Thank you. And as you can tell by the bell,
Chairman Powell, I do not have time to ask you my questions,
but I will have you respond to them either later in the
hearing, or else I will send them to you in writing.
Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
Secretary Mnuchin, I see by your testimony today you really
do not understand what is happening in families across our
country, almost celebrating your marvelous work of you and the
President that the country so decisively rejected. One of my
favorite Abraham Lincoln quotes is he used to talk about going
out and getting his public opinion bath. It is pretty clear--I
appreciate what you said about restaurants, but it is pretty
clear that you have left behind, the Administration has left
behind, the President is only concerned about seeing something
that is not there, fraud in an election, as so many Republican
judges and a few courageous Republican office holders have
spoken out against.
At our last hearing, I asked you and Chairman Powell to
read a piece by ProPublica about a small business owner in
Cleveland whose business could not get help while the giant
corporation occupying the same building has gotten plenty of
taxpayer support while laying off its workers. I am hoping you
would have read it and made a more serious effort to understand
what is happening in places like Cleveland and Mansfield and
Shelby and Springfield, Ohio. Millions of American workers are
still struggling. Millions more are out of work. All the
numbers are going in the wrong direction. You would not
determine that from your comments today, it is clear, and you
were never serious about fighting--I sat in that room, too, in
the LBJ Room. It is clear you were never serious about fighting
for the real people who make this country work. Instead of
making a deal that would have done more to help them, you
pushed to make life just a little bit easier for the Nation's
biggest banks. Now you have killed the CARES Act loans that
were supposed to be a tool to help smaller businesses and their
workers and buried the money. It looks like you and the
President and others in the current Administration are trying
to spend your final days in office preemptively--I will use
that word again--sabotaging the next Administration's efforts
to clean up your mess. But you still work for the American
people even though I do not think you are acting like it,
Secretary Mnuchin. I wish you and your Administration would
stop crowing about the stock market and stop passing the buck
instead of doing the hard work. President-elect Biden and your
successor will have to fix the mess you are leaving behind.
Now, my question is for Chairman Powell. Chairman Powell,
you will be around at the beginning of the next Administration.
You will be part of the clean-up crew. You have made clear--and
I appreciate the conversations we have had where you have made
clear that Congress needs to do more fiscal support. You have
also commented recently that even if we take bold action, we
are not going back to the same economy and that it will be more
difficult for workers going forward.
So my question is this: We have seen how the Fed and
Treasury actions supported the stock market and benefited the
wealthiest people in this country. What can the Fed do, Chair
Powell, to make sure that workers do not get left behind again?
Mr. Powell. Thank you, Senator Brown. So I would say this:
We have provided and will continue to provide very strong
support for the economy and for workers in particular through
the use of our tools, and we remain committed to using all of
our tools to their fullest extent for as long as is necessary
to get us through this difficult period.
We have thought about this collective effort, this
governmentwide effort, as one that involves getting the people
and the businesses that constitute the economy across the chasm
created by, you know, the pandemic, getting them safely to the
other side, to the postpandemic economy. And I think, frankly,
that the fiscal policy, particularly the CARES Act, deserves
the lion's share of the credit in creating that bridge so far.
It may be that we need more on that front, but from the
standpoint of the Fed, you can be sure that we will continue to
use our tools. And, by the way, those tools would include
Section 13(3) facilities, which remain available to us under
the law. As the Secretary pointed out in his letter, they can
be backed up by Exchange Stabilization Funds should the legal
requirements for such funds be met.
Senator Brown. Chair Powell, does the Fed have an
obligation to address the problems of inequality that many
argue Fed actions have amplified, especially in addressing
inequality in communities of color?
Mr. Powell. So I think the inequality is a very important
and ever more broadly understood problem in our economy. These
persistent disparities along racial and gender and other lines
really hold our economy back. I think that the Fed has a
contribution to make there. It is not the principal
contribution. I think that really fiscal policy and Congress
and the private sector, too, have had very important roles
there. What we can do is a lot of what we are doing, which is
to focus on maximum employment, which is your order to us--that
is the goal you have set forth for us--and to really take that
idea seriously. And I think you have seen with the most recent
modifications to our operating framework that we are taking it
seriously and focusing on these issues more as holding the
whole economy back.
Senator Brown. Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
And before we go to Senator Toomey, I just have to say,
Secretary Mnuchin, you have been accused of killing the CARES
Act loans for small businesses. I think that is mostly the PPP
program, which we tried to reenergize and extend on the floor
of the Senate, only to have it killed by the other side when we
were trying to do that. But we will continue to have these
debates back and forth.
I turn next to Senator Toomey.
Senator Toomey. Thank you very much, Mr. Chairman. And, Mr.
Chairman, as this might be the last Banking Committee hearing
of your chairmanship, I do want to thank you for your
leadership and the really hard work and outstanding work you
have done.
Chairman Crapo. Thank you.
Senator Toomey. It has been a pleasure working with you.
What I want to do is, first of all, I want to applaud
Secretary Mnuchin for closing the 13(3) facilities by year-end
exactly as the law requires and as Congress clearly intended. I
want to thank Chairman Powell for returning the unused CARES
funds back to the Treasury. The fact is Congress entrusted both
of you with some extremely powerful, unprecedented, emergency,
and yet temporary tools, and I commend you for working together
to deploy those tools for their intended purposes and then
putting them away now that that specific purpose has been
achieved.
And I think it is important to review what was happening
and why we designed the CARES Act as we did. The fact is, in
March, we had unprecedented turmoil in our capital markets,
threatening the ability of businesses, municipalities, and
States to access capital and credit. Credit markets were on the
verge of completely freezing up. There was a mass investor
flight to cash. In many cases, there were no buyers in sight.
Private credit was not flowing to any institutions that needed
it. And this freezing of our financial system was a very
serious threat that it could precipitate a full-blown
depression that would last for who knows how long.
Kent Hiteshew, the Deputy Associate Director for Financial
Stability at the Fed, noted in congressional oversight
testimony--and I want to quote because he summarizes this very
well. He said, ``The conditions that prevailed in March were
unprecedented--far worse than during the onset of the financial
crisis in late 2008 or even in the days after 9/11, when the
municipal market was briefly closed. Interest rates soared . .
. mutual fund investors pulled over $41 billion of assets out
of the market in less than 3 weeks, and market functioning
deteriorated to the point that buyers and sellers had
difficulty determining prices. Ultimately, this meant that
State and local governments were effectively unable to borrow,
with most new issues canceled for lack of investor demand.''
Mr. Chairman, that was the problem that Congress was
seeking to address, to solve, by providing the CARES Act
funding for temporary emergency facilities. Congress' intent
was clear. The facilities were designed to create a liquidity
backstop until the crisis passed and then cease operations no
later than the end of 2020 in any case.
Last week, I would point out that every Republican on this
Committee signed a letter sent to Secretary Mnuchin and
Chairman Powell affirming that this is, in fact, our
interpretation of the law and the intent of Congress.
I also think it is important to underscore how remarkably
successful these facilities were in achieving that intended
purpose of stabilizing credit markets and restoring the flow of
private credit. In fact, it worked better than I think most of
us thought even possible. Markets did not just improve. They
did not just restore liquidity. But we reached record volumes
of debt issuance. We did so at low spreads, low yields,
affordable interest rates. Regional banks extended credit to
their customers, and according to business surveys, unmet
demand for credit among creditworthy borrowers is almost
nonexistent.
So let me go through some of the arguments that we have
heard for why we should not have closed down these facilities
because I think they are all mistaken.
One was that the viability of the credit markets, the
stability of the credit markets depends on these backstop
facilities. Well, that has clearly been disproven by the fact
that the announcement of their end brought absolutely no
disruption to any financial markets that I can tell at all.
The second suggestion by some is that, well, we need to
keep these facilities around because, you know, some bad thing
might happen someday in the future. Well, it has always been
the case that you could imagine some bad thing happening in the
future. If some terrible thing were to happen to threaten the
viability of our financial markets, then the Treasury and the
Fed should come back to Congress and ask for appropriate
facilities at that time.
Others point out that there are whole industries that are
actually in big, big trouble. That is a true fact, especially
travel and hospitality and entertainment, where consumer demand
has basically disappeared. It is up to Congress to decide what
to do about that. It is not up to the Fed to lend money to what
are probably insolvent companies.
So let us be clear. These facilities were designed for a
very specific purpose. They achieved that purpose more
successfully than we could have reasonably hoped, and we should
not use them to morph into some other purpose like as a
supplemental and/or complement to fiscal policy.
I want to thank the Chairman and the Treasury Secretary for
really the outstanding work they did in helping to ensure the
viability of our financial markets and thereby avoid a
prolonged depression.
Chairman Crapo. Thank you, Senator Toomey.
Senator Reed.
Senator Reed. Thank you very much, Mr. Chairman, and let me
thank Secretary Mnuchin and Chairman Powell for being here
today.
Chairman Powell, in your November 5th press conference, you
said, ``The fiscal policy actions that have been taken thus far
have made a critical difference to families, businesses, and
communities across the country. Even so, the current economic
downturn is the most severe in our lifetimes. It will take a
while to get back to the levels of economic activity and
employment that prevailed at the beginning of this year, and it
may take continued support for both monetary and fiscal policy
to achieve that.''
Chairman Powell, how long will it take us to get back to
pre-COVID levels of economic activity and employment without
any further fiscal relief this year from Congress?
Mr. Powell. That would be very difficult to say how that
would play out in terms of the time. I will say, though, that,
first of all, the economy has actually performed better than
expected. It has been more resilient to spikes in cases than
expected. And so we have had a recovery that has been faster
than most forecasters have expected so far.
Nonetheless, we do have a long way to go. We have got on
the order of 10 million people who lost their jobs because of
the pandemic, and for reference, that is more than lost their
jobs during the global financial crisis in the United States,
so it is a lot of people. So there is a long way to go, and I
think we can both acknowledge the progress and also point out
just how far we have left to go.
As I said earlier, the lion's share of the credit really
should go to fiscal policy. And, of course, you know, the
timing and the scope and the size and the components of that
are entirely up to you. I just point out that we will use our
tools until, you know, the danger is well and truly passed, and
it may require help from other parts of Government as well,
including Congress.
Senator Reed. Well, thank you, Chairman Powell. Also in
your November 5th press conference, you pointed out the
collective desire to ``keeping this episode short as it can be
and avoiding unnecessary business bankruptcies, unnecessary
household bankruptcies, unnecessary long-term stays of
unemployment,'' and ``there is a real threat of those things,
and . . . we are trying to do everything we can to minimize''
them.
We are beginning to see that right now. Several of my
colleagues have alluded to the fact that, as these eviction and
foreclosure moratoriums expire, there could be thousands and
thousands of people thrown out of their homes, which will
affect, I think, the financial markets. In that case, it might
be good to have a facility backed by the CARES Act.
Some of these issues are not hypothetical. They are not
sort of a crisis of the future that we do not see. They are
very real. In fact, they are coming unless we take appropriate
action, and that would be, I would think, fiscal action.
Do you think that these threats are just sort of
substantial or are they almost upon us?
Mr. Powell. So as I mentioned in my testimony, Senator, I
think there is a real distinction between the near term and the
medium term. In the near term, we see the spread of the
disease. What we are hearing from businesses and from--we meet
with a group of community bankers that we regularly meet with a
week or so ago. What we are hearing is that there are a lot of
small businesses that are at risk of going out of business
during this winter, which could be a tough few months.
At the same time, though, we are getting this news about
the vaccines which are more effective and they have come
sooner, so there really is, you know, in the medium term,
upside risk here.
The other thing I will say is that the fact that the
economy was in very good shape at the beginning of the
pandemic, that may be one of the reasons why it has recovered
faster than we thought and kind of continued to defy
expectations of problems.
So I do think those are real risks, though. I think the
risk of small businesses going out of business, the risk of
people at the lower end of the income spectrum. At the bottom
quartile, I think the unemployment rate is still 20 percent.
These are not people with a lot of savings, a lot of resources,
or a lot of opportunities right now. And so I think that there
are parts of the economy that really will need help or might
need help to get that last span of the bridge in place to get
to the other side of the pandemic.
Senator Reed. I think one of the points you are making is
that the impact of this crisis economically is not shared
equally by all Americans. There are groups that are
impoverished now and are on the edge of even worse disasters
unless we act. And if we do not act, then we will have two
separate but unequal groups of Americans, and that is not a
recipe for a country that can move forward.
Thank you very much.
Chairman Crapo. Thank you, Senator Reed.
And before we move to Senator Scott, I would just indicate
that we are moving in a few minutes into a series of votes on
the Senate floor. I am going to leave right now to vote early
on the first vote and then return as quickly as I can, and I
have asked Senator Tillis, who is present here in the hearing
room, to chair for me while I am gone.
Senator Scott.
Senator Scott. Thank you, Mr. Chairman. And before you
leave, I would like to say to you thank you for your leadership
on our Committee. You have done a fantastic job. You have
listened to both sides. You have led in a bipartisan fashion.
The people of the Nation are desperate to see their Congress,
their Senate working well and working together, and, frankly,
disagreeing is a part of what we signed up for, but looking for
opportunities to bring the Committee together and bring this
Nation together. I think you have been a shining example of
that, Mike, and I want to say thank you for your leadership.
And to Chairman Powell as well as Secretary Mnuchin, you
both have done a pretty good job under incredibly negative
circumstances, and the situation continues to change.
Certainly, thank you, Chair Powell, for your leadership of our
Nation under these challenging times. Secretary Mnuchin, you
have stepped up to the plate and have provided programs and
resources in a way that we have never seen in the history of
the country from my perspective, and I thank you for your
strong leadership.
With that said, one of the things I have noticed as we have
worked our way through this pandemic is small businesses have
been struggling and, frankly, as a former small business owner
myself, I understand the pain and the misery of being in small
business. I also remember the thrill of victory more than I do
the agony of defeat. I remember the blessing of employing
members from my neighborhoods where I grew up and having folks
join the team as customers and seeing the revenues increase and
the opportunities for my employees increase. And one of the
things that is often missing when we are talking to small
business owners is the important ingredient that for most of us
our small business employees are an extension of our family.
And so when you start talking about the small business
environment and small businesses being decimated by this
pandemic, you are actually talking about the fragile nature of
small business and the absolute implosion of the foundation for
so many employees around the country. I think we sometimes miss
the fact that when you are talking about small business, you
are actually talking about employees who work at the small
businesses more than you are the small business owner.
To that end, Secretary Mnuchin, you have watched, as I
have--and, Chair Powell, you have as well--that 20-plus percent
of all small businesses fail. That number is even higher for
Hispanic business owners. They are in the 30s, and that is
devastating to the community and to the employees of those
small businesses who now no longer have a job to go to. And,
frankly, in the African American community, that small business
number is in the 40s.
My question, Secretary Mnuchin, is: Minority-owned
businesses have been the hardest hit in this COVID-19 economic
slowdown. Do you agree with the assessment that direct
assistance, tailored assistance for those in similarly situated
businesses would have a wide rippling benefit to the economy?
Secretary Mnuchin. I do, Senator, absolutely. And, you
know, I would say despite the success of Project Warp Speed and
the fact that we will have vaccines distributed in large mass,
the problem is now, as you said, these small businesses cannot
wait 2 or 3 months. So I would urge Congress again to
reallocate unused money and more money to PPP, do a set-aside,
as we did last time, particularly for the underserved areas. I
know that you and Senator Warner and others have worked on a
possibility of $10 billion to be invested into CDFIs which
could lend $100 billion into underserved communities.
So I think there is a lot that can be done and should be
done very quickly.
Senator Scott. Thank you, Secretary Mnuchin. I would say in
addition to what we have already done and what we can do, if I
am correct, Secretary Mnuchin, what you are referring to is
that the Paycheck Protection Program still has unused resources
sitting there, over $100 billion that could be available for
small businesses right now. If Congress would get their act
together, our act together and make those funds available to
the market, that could have a significant positive impact on
the employees of these small businesses who today simply cannot
find the way forward.
With my last few seconds, I think another opportunity that
we have before us is to look at the Paycheck Protection Program
forgiveness, making it simple, and it may take congressional
action for us to simplify the process. Do you see any ability
from the Administration's perspective to streamline and to
simplify the process for banks and, therefore, making it easier
for small businesses to find a little calm and a little comfort
in knowing that their small business loan that was to be a
grant is actually going to become a grant?
Secretary Mnuchin. I will be quite brief in responding, but
I would say we have created three separate forms, so we have
done everything we can on administrative action, including a
separate form for 50,000 or less. But I would urge Congress to
make changes to the legislation to allow for simpler--and,
again, I would urge Congress to reallocate the $140 billion
that is sitting there that can have an enormous impact for
small businesses and the PPP immediately.
Senator Scott. Thank you, Secretary, and that can be done
today. We can do that today if we decide to do so. I am
supportive of that concept.
Thank you so much.
Senator Tillis [presiding]. Senator Menendez.
Senator Menendez. Thank you very much.
Secretary Mnuchin, according to the National Bureau of
Economic Research, at least 3.3 million small businesses have
closed, 441,000 of which are black-owned small businesses, and
657,000 of which are Latino-owned businesses; 1.1 million State
and local employees have lost their jobs, according to the
Bureau of Labor Statistics. You do not dispute those figures,
is that fair to say?
Secretary Mnuchin. I do not have them in front of me, but I
have no reason to dispute them. I assume you are quoting them
accurately.
Senator Menendez. So how many more small businesses do you
project will permanently shutter after you end the CARES Act
lending facilities? How many more State and local employees
will be laid off as a result of your decision?
Secretary Mnuchin. Again, let me be clear, Mr. Senator. My
decision is a legal decision, not an economic decision.
Congress can reauthorize this money if you want to extend it.
But I think those small businesses need grants. They do not
need loans. They cannot qualify for Main Street. That is why
Main Street did only $10 billion. And they need PPP money.
Senator Menendez. Well, let me just say that you cited
earlier, in response to, I believe, the Chairman's questions,
Section 4029 of the CARES Act as the reason that you had to
close down these facilities. What is wrong with that recitation
is that this provision applies to Treasury's authority to
invest in new facilities and not the ability of those
facilities to make loans to companies in the real economy.
So while I agree with you on grants, in the interim we need
to use every tool we have. No one will be better off after you
end the CARES Act facilities. As we enter a third wave of
COVID, I think ending these facilities is not mandated by law.
It is important as an economic backstop. It will have real and
harmful consequences on our recovery, on our businesses, on
American workers.
You know, during your previous appearances before the
Committee, not a single member--we went through the record--
even suggested that you should close the facilities. In fact,
most of us on both sides of the aisle--Chairman Crapo, Senator
Brown, Senator Tillis, myself, and others--have been urging you
to make changes to the facilities so that they could provide
more relief to businesses and State and local government.
As a matter of fact, in October, in response to questions
from the Congressional Oversight Commission, you did not say
that the CARES Act legally required you to end the facilities.
You just said you did not think that they were needed.
So, Mr. Chairman, I ask that the Treasury Department's
responses to the Congressional Oversight Commission dated
October 16th be entered into the record.
Senator Tillis. Without objection.
Senator Menendez. So there is a choice here, and,
unfortunately, the choice you are making is really
consequential to businesses, to people, to our recovery.
Mr. Secretary, last Tuesday, a Treasury Department
spokesperson said that you plan to put the $429 billion you are
withdrawing from the Fed's lending facilities into the
Treasury's general fund. Is that a correct statement?
Secretary Mnuchin. Again, let me just first comment on the
first part. I do not agree with your reading, OK? I believe
that the section applied to direct and indirect, and had you
thought it applied otherwise, there would be a loophole, and
there would be no point of having the date. I was never asked
about the December 31st date, and I always assumed that if
Congress wanted to extend that, they can.
Now, as regards to the proceeds, let me direct you to
Section 4003, which talks about the deposits of proceeds.
Again, it is my intent to completely follow the law, and the
law requires the amounts transferred to go to the financing
account and then to repay any money lent to Treasury. So,
again, we will completely follow the law. This is not
discretionary. Again, I urge Congress----
Senator Menendez. Let me----
Secretary Mnuchin. ----if you want to extend this, bring
back legislation which would authorize me to do it.
Senator Menendez. You can keep putting the onus on Congress
when, in fact, you have the abilities--let me read to you
Section 4027 of the CARES Act that provides Treasury with the
appropriation of these funds, ``On January 1, 2026, any funds
described in paragraph (1) that are remaining shall be
transferred to the general fund of the Treasury . . . .'' It
does not say ``by'' or ``no later than January 1, 2026.'' So
these funds being moved ultimately undermines--I hope, Chairman
Powell, that you will commit to not return any funds to the
Treasury until we are assured in Congress and the public that
those funds will remain in the Exchange Stabilization Fund as
required by the CARES Act.
Secretary Mnuchin. Just for the record, they do not go back
into the Exchange Stabilization Fund, as I cited in the act.
Senator Tillis. Senator Cotton.
Senator Cotton. First off, I want to join our colleagues in
thanking Chairman Crapo for leading this Committee so ably. I
do want to point out, though, to paraphrase Mark Twain, reports
of his demise may be greatly exaggerated. He is not going
anywhere. He is still going to be a Senator. He is simply going
to be chairing the Finance Committee next year. But we have all
appreciated his leadership.
The economy is recovering more strongly than I think anyone
predicted in March, and I think that is important because of
the response of this Congress in the CARES Act at first and
then in the way the Trump administration--in particular, the
Department of the Treasury and the Federal Reserve--has
directed it. So I want to commend both you gentlemen on your
stewardship over these last 9 months.
Now, the economy could continue to recover even more
strongly, in effect, and especially for those people who are
still struggling the most, the waitresses and the busboys, the
bartenders, the karate instructors, the music teachers, people
who work in fields and industries that have lots of in-person,
close, continual contact. So there are two things we could do
to help solve that problem immediately.
One is to tell these Democratic Governors and mayors to
stop with the irrational lockdowns. Tell the Governor of
California, Gavin Newsom, not to lock down small mom-and-pop
restaurants while he goes off with all of his lobbyist buddies
to eat at the French Laundry, one of the world's most expensive
and exclusive restaurants, paying $300 for caviar and truffles.
Second, for Congress to pass a new coronavirus relief bill.
We all have bipartisan agreement to support those people who
are still in need, yet Chuck Schumer and Nancy Pelosi will not
relent on their $3.5 trillion wish list. They want to hold up
funding for small businesses and for restaurants and for
industries like airlines, money to help schools reopen in some
States, or stay open as the case is in Arkansas, so they can
get things like welfare checks for illegal immigrants or they
can override State voting laws or let violent felons out of
prison--things that have nothing to do with the coronavirus.
Those are the two most important things we could do to help
those who are still struggling from this virus get back to work
until vaccines are approved and widely distributed.
What will not help, what was not designed to help were the
13(3) programs that have been so much a point of discussion in
this conversation today. The 13(3) facilities have achieved
their purpose. The reason we wrote it and the reason Members of
this Committee helped draft that language in March was to
stabilize credit markets to help ensure the flow of credit to
fundamentally creditworthy businesses and States and cities. It
was not to subsidize unsound or failing businesses that were
not going to be able to succeed before China unleashed this
plague on the world. It was not to bail out fiscally
irresponsible, most Democratically led States and cities who
had mismanaged their finances for years or even decades. It was
to stabilize credit markets.
And I have to say it appears at the time there was some
bipartisan concern that these funds could be misused. I will
just quote from a few people what they said at the time about
our Treasury Secretary.
Joe Biden referred to these facilities as a ``$500 billion
slush fund and a blank check.''
Ironically, Senator Brown, given the fact that he accused
Secretary Mnuchin today of sabotaging the recovery or intending
to drive the economy off in a ditch, said at the time the
money, $425 billion, that the Secretary of the Treasury can
decide is a slush fund or where to direct that money.
Senator Warren said that we are at $450 billion slush fund
that would go to the Secretary of the Treasury to help whoever
he wants.
And, ironically, given what Senator Menendez just said to
Secretary Mnuchin, this bill has a $425 billion slush fund with
which basically the Secretary of the Treasury can say, I like
you, you get this; I do not like you, you get nothing.
I guess the shoe may be on the other foot now, and it seems
like the Democrats, with the hope of having a new Secretary of
the Treasury and a new Administration, would like a $450
billion slush fund to reward politically favored organizations
like, I do not know, abortion providers or marijuana
dispensaries or maybe to bail out their partisan allies in
States and cities that have mismanaged their finances for
years.
But that is not what the law says, and that is the point
that Secretary Mnuchin has been making all along, if I am not
mistaken. This is not an economic decision. This is a legal
decision. This law was designed from the beginning to stabilize
credit markets at the height of the uncertainty of this
pandemic in the spring, and that is exactly what it did.
Secretary Mnuchin does not have legal authority to keep these
programs in place. He took the right action. And if our
Democratic colleagues want this money to be available, then
they need to work with us to pass new legislation.
Thank you.
Senator Tillis. Senator Tester.
Senator Tester. Thank you, Acting Chairman Tillis. And I
also want to thank Senators Jones and McSally for the
opportunity to serve with them on this Committee and in the
U.S. Senate. And I also want to thank Chairman Crapo for his
evenhandedness and his ability to work with both sides of the
aisle and, quite frankly, unlike the last Senator, actually
bring people together and not divide them. So I appreciate
Senator Crapo in that regard.
Look, I have the feeling we are at a fulcrum here where the
economy still is in very, very difficult conditions, and not
that what Senator Toomey did not say was not correct 6, 8
months ago. It was correct. But we are not out of the woods
yet, and, Chairman Powell, I have the feeling that if we just,
you know, fold up our hands and walk away, that this economy
not only might, it will slip backwards over the next few
months. That might be by design by some that serve in the U.S.
Senate or in the Administration, but it certainly is not my
goal. And so I would like Chairman Powell to highlight the
importance of additional fiscal support for the success of the
economy moving forward.
Chairman Powell, you talked about the folks out there who
continue to hurt, and I will tell you that I think it is bigger
than just the PPP program extension. I think our health care
system is, quite frankly, stressed to the max. In Montana, I am
not sure there are any beds available for this pandemic right
now. They are all full. And I can tell you I think that is the
way it is in many parts of the States. So when we talk about
not locking down, go bury our heads in the sand and assume that
this pandemic has not even happened and it has no importance, I
have got news for you. My wife has been in treatment for
cancer, and the cancer she will survive. If she gets this
COVID, I am not sure she will. So I think we need to wake up in
the U.S. Senate when it comes to who is locking down what and
the reasons for it.
But, that aside, without any other comments, I would just
say, Chairman Powell, can you talk about the importance of
addressing our health care business, our hospitality
businesses, our working families that, as you have said, some
are in really tough shape, local governments. And, by the way,
mismanaged local governments? Give me a break.
The U.S. Senate under some of the best economic times ever
borrowed $1 trillion a year, and you accuse local government of
mismanagement? Holy mackerel. It is hard for me not to cuss.
But--and educational units.
So, Chairman Powell, could you talk a little bit about what
is really needed out there, where this economy may slip back?
Do you see it the same way I do?
Mr. Powell. Thank you, Senator. So I think I would put it a
little bit in context. You know, we have done a lot, and we
really appreciated the working relationship we have had with
Treasury on the facilities and thank them for the productive
work we have been able to do together. Our thinking is that we
would have left facilities in place to be backstops. We do not
question the Secretary's decision about the CARES Act money
because that is entirely his decision to make. But I think
central banks generally would have done that.
In terms of what more may be needed, we are hearing a lot
from our discussions with people throughout the Federal Reserve
System and across the country about small businesses that may
struggle during this period of just the next few months, during
the winter, with the spread of the virus high. And it is those
people who are in public-facing jobs in vulnerable industries,
and, you know, they may see what may be the light at the end of
the tunnel in the middle of next year as the vaccines come out
and are widely distributed. But they may need more help to get
to that place, and so that is the way we are looking at it. We
will continue to use our tools to their fullest extent, and
that will include 13(3) facilities if appropriate--if
appropriate--and if they meet the legal requirements, but it
may also include direct help to businesses that really do not
need to borrow anymore. As the Secretary was noting, some of
these businesses, what they need is, you know, fiscal policy,
is a grant to get them through this last bit of the pandemic
rather than borrowing more through a Federal Reserve facility.
Senator Tester. And I think we all agree with that. In the
end, if nothing is done--and I do not think anybody on this
Committee, at least I hope not everybody on this Committee
wants nothing to be done. But by the same token, I do not think
we go into a job and do it half-assed either. I think there are
plenty of folks out there who are hurting big time, and I am
not just talking workers. There are workers that obviously are
that are looking for a job for so long that they are actually
falling off the unemployment rolls. But small businesses,
whether we want to pound our chests or not, but local
governments that have been put in a situation because of
reduced income because of this pandemic are in a tough
situation, educational units because there are many schools
that are doing dual distance learning and in-person need
additional dollars. Do you see us sliding backwards if we do
nothing, or do you see the economy being static for an extended
period of time?
Mr. Powell. I think there is a risk. I would characterize
these as risks. The economy has continued to perform better
than we expected. It has been more resilient to further
outbreaks than we have expected. At the same time, this is a
very large outbreak, and what we are hearing suggests that
there is a real risk of small businesses and people who are
unemployed for extended periods, and I think those are real
risks that should be taken into account.
Senator Tester. I want to thank both Chairman Powell and
Secretary Mnuchin for being here today. I appreciate your work.
Chairman Crapo [presiding]. Thank you.
Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman.
First of all, Mr. Chairman, I would like to say thank you
to you for your leadership on the Committee, and I do
appreciate the fact that we have been able to do some things on
a bipartisan basis, and that has a lot to do with your hard
work.
Chairman Crapo. Thank you.
Senator Rounds. I would also like to thank both of our
guests here today. Chairman Powell and Secretary Mnuchin, I
think you have done very, very good work under some very trying
circumstances. But I would like to begin my questioning today
with Secretary Mnuchin.
Housing has been one of the bright spots of our economy
during the pandemic, and I want to make sure that we do
everything we can to continue providing the necessary support.
One of the potential threats I see is ending the
conservatorship of the GSEs. While I agree in a perfect world
that conservatorship should have been ended some time ago, I am
concerned that if recent conversations come to fruition and
Fannie and Freddie are prematurely released from the FHFA's
control, the strength we have seen in the housing sector could
be called into question.
For Secretary Mnuchin, in light of the pandemic, what are
your recommendations with respect to the timeline for when
conservatorship can be safely unwound?
Secretary Mnuchin. Well, let me just say I do not think
that they should be let out from conservatorship without
appropriate capital. There are obviously different
opportunities to accumulate capital and raise capital. This is
one of the areas that I will continue to try to work with this
Committee and others. I think there should be housing reform. I
think that the appropriate scenario is for these to have real
capital and ultimately them to be released.
Senator Rounds. Thank you, sir.
Chairman Powell, a follow-up. The Federal Reserve is the
largest investor in mortgage securities. Would you share your
thoughts about the impact to the housing market if an end to
conservatorship were to occur prior to the time in which the
pandemic impact has been eased?
Mr. Powell. I would just echo the Secretary's point that I
would certainly like to see the GSEs return to private hands
over time and the housing finance sector and system standing on
its own two feet with a lot of private capital behind it. So I
think it is something that time needs to be taken on, and I
would applaud the new capital standards that have been put in
place. But that capital still has to be raised, and I do think
it is something to do carefully, and I know that is consistent
with what the Secretary is thinking.
Senator Rounds. Thank you. I appreciate also the
flexibility that our banking regulators have given financial
institutions who have wanted to work with customers
experiencing COVID-related hardships. Unfortunately, not many
of us thought that the pandemic would last as long as it has,
and several sectors of the economy, like the airline industry,
travel, hospitality, all still face challenges.
What do we need to be doing to support the financial
institutions who want to continue working with customers in
these hard-hit industries? I know we talk about targeted and
specific assistance, but financial institutions have really
been right in the middle of this whole thing, and the
expectation has been that we have allowed them flexibility.
I think it would be very helpful to hear from each of you
your thoughts on this particular issue, and in this case I
would ask Chairman Powell to go first.
Mr. Powell. I think the most important thing is that as the
economy recovers, companies are recovering, and the more they
recover and the faster they recover, the smaller the losses
will be.
I also think we will continue to encourage banks to work
with their borrowers and continue to keep in place the very
targeted relief that we have provided, which does not undermine
safety and soundness in any way, but that allows banks the room
to do what they want to do, which is to serve their customers.
So we would not want supervision and regulation to undermine
the process of working with customers where it does not
implicate safety and soundness.
Senator Rounds. Secretary Mnuchin.
Secretary Mnuchin. I would just echo the Chair's comments,
and I think they have done a very good job across regulators in
providing the right flexibility.
Senator Rounds. Thank you. And, Mr. Chairman, I will yield
back my final 15 seconds.
Chairman Crapo. Thank you. Deeply appreciated.
Senator Warner.
Senator Warner. Thank you, Mr. Chairman. Let me also echo
what all my colleagues have said. Thank you for your leadership
on this Committee, and let me thank you in particular,
Secretary Mnuchin, and so many of us on both sides of the aisle
for your help on putting together a plan to help black and
Latino businesses that have been particularly hard hit by
COVID.
Chairman Crapo. Thank you.
Senator Warner. You may know that this morning a bipartisan
group of Senators, which I was proud to be part of, announced
an emergency relief framework that would help us get through
what I fear will be the worst days of the pandemic coming
ahead. I do not think the stakes could be higher. We all know
that UI will start running out for folks the day after
Christmas. We have seen the food lines across our country. We
know that small businesses are on their last legs. We know that
many State frontline workers will soon have to be laid off, and
literally we could have millions of people put out of their
homes as early as the middle of January. I think that is simply
unacceptable, and my hope is that members of the Administration
and members of the Congress will sit down and figure out
whether this framework or an alternative can be that bridge and
we get it done before the holidays.
It is this bridge--and it is not a long-term plan that I
know Secretary Mnuchin was negotiating with Speaker Pelosi. It
is not maybe even what President-elect Biden will want to do.
But this package, which weighs in at $908 billion, does take
care of UI. It takes care of student loan assistance. It takes
care of small businesses with a focus on those CDFIs. It takes
care of broadband. It takes care of food insecurity. And at the
end, I am going to make sure I ask both of you whether, without
knowing the details, do you think generally this is the
direction we ought to head.
Let me also take one more minute, because this is something
that Senator Crapo, Senator Scott, Senator Tillis, a number of
us on our side have come together on, and that is in this
package the $12 billion provision for new capital investments
from minority-owned banks and CDFIs, community development
financial institutions. We know that black and Latino
businesses have been particularly hard hit by COVID. We have
lost 440,000 black-owned businesses that have shut their doors,
a generation of wealth accumulation that has closed down. We
know that 40 percent of Latino-owned businesses have closed
their doors.
I heard, for example, from Dr. Anna Peoples, a constituent
of mine who 5 years ago opened up Peoples Pharmacy and Diabetic
Center in a lower-income neighborhood in Norfolk. COVID-19 hit
her business really hard, and she said, ``I treat folks the way
I want you to treat me.'' And when you ask them when they walk
through the door, I want to receive compassionate care that you
deserve, that is exactly what they do. Her business is on the
brink of shutting down, and, Mr. Chairman, I would ask that her
article from the news story about Dr. Peoples' business be
entered into the record.
Chairman Crapo. Without objection.
Senator Warner. And in my last 2 minutes here, I will ask
Chairman Powell and Secretary Mnuchin two questions. One, while
you have not seen the details of the $908 billion plan that was
bipartisan, bicameral--put out this morning--framework, do you
think directionally this kind of bridge emergency relief is
needed at this point? Chairman Powell, would you go first?
Mr. Powell. I would, of course, defer to you and to the
Secretary who have authority in this area on the particulars of
it. But as I have said, I think it sounds like you are hitting
a lot of the areas that could definitely benefit from help and
some of the areas that are--these are areas that are going to
be experiencing a challenging winter. But I cannot really speak
to the particulars of the bill having not seen it.
Senator Warner. I understand. I appreciate that.
And, again, Secretary Mnuchin, I know you know that--while
you have not seen any of this--I know you were negotiating on
many of these things, the particulars. Again, directionally,
without going into the particulars, do you think this kind of
effort is needed?
Secretary Mnuchin. Well, let me first say I did comment
earlier to Senator Scott and I applaud the work that you have
done on the CDFI program. So whether it is $10 or $12 billion,
I very much support that. That could create $100 billion of
lending quickly. I look forward to reviewing with you the
overall package. I do think that more fiscal response is
needed.
I think what is more important is what we can pass quickly
on a bipartisan basis to target the most difficult parts of the
economy, hopefully, that will be needed and done quickly. So I
look forward to following up with you. I missed the press
conference because I am here testifying.
Senator Warner. I understand. I promise you we will share
that with you immediately.
Mr. Chairman, I just want to appeal to all my colleagues.
This is our best effort at a framework. I hope everyone will
give it a reasonable review, and, again, I appreciate your
leadership on this Committee. Thank you.
Chairman Crapo. Thank you, Mark.
Most of our Members are off voting right now, but I
understand that Senator Warren is with us.
Senator Warren. I am.
Chairman Crapo. Go ahead, please.
Senator Warren. Thank you very much, Mr. Chairman.
So today more people are getting sick from the coronavirus
than at any other time during the pandemic. And on top of that,
the help that many people have relied on is about to disappear.
So the day after Christmas, 12 million workers will lose
unemployment benefits. That same week, Secretary Mnuchin will
be shutting down the Federal Reserve programs that are designed
to help the economy.
So, Chair Powell, you have been clear about the need for
more fiscal support to help families and businesses get through
this crisis. So let me ask you specifically about help to
individuals that puts more money in their pockets during an
economic crisis. This is kind of Economic Stimulus 101. If
individuals have a bit more cash to spend every month, that
helps them, but it also helps the economy, right?
Mr. Powell. Yes.
Senator Warren. OK. So there are two ways to get more money
into people's pockets. The first is providing payments like
stimulus checks or unemployment insurance, which I strongly
support. The second is by canceling the debts that people owe
so they can spend that money elsewhere. The largest category of
household debt other than mortgages is student loans, and most
of that debt is owed directly to the Federal Government.
Now, right now those debt payments are paused, but the
clock is running out. On New Year's Day, the median borrower
will have to restart paying more than $200 a month to the
Federal Government. That is at a time when our economy needs
people to be able to spend more money, not less.
So, Mr. Chairman, you have said in testimony before
Congress that you think that rising student debt is ``the main
concern'' when looking at the overall household debt picture.
You have also said, ``It has been rising fast and is now large.
There is increasing evidence that shows that students who
cannot pay that debt have difficulty having normal economic
lives and buying homes and things like that.''
Mr. Chairman, would you agree that high levels of student
debt will have a negative impact on our economic recovery is
millions of households have to reduce spending in order to make
debt payments?
Mr. Powell. So others and I have been calling out the
rising student debt for some years now, particularly----
Senator Warren. Yes, you have.
Mr. Powell. ----since we have singled it out for not being
able to be forgiven in insolvency among all different kinds of
debt. So that is a longer-term problem.
In terms of what appropriate relief would be, what relief
would be appropriate here in the current situation, I would
have to defer to those who have authority to make that
decision.
Senator Warren. Well, I am not asking you about what the
question is about what Congress should do. I am asking you the
question about what it does to the economy if people who,
instead of spending that money in the economy, are spending
that money by sending money back to the Federal Government on
their student loan payments. That is a problem for the economy,
is it not?
Mr. Powell. Certainly, people who are weighed down by debt
in a situation like this where they may be unemployed, where
unemployment is very high among, for example, low-wage workers,
that can weigh on economic activity, yes.
Senator Warren. Fair enough, but I think we started with
Economic Stimulus 101; 200 bucks is 200 bucks that could be
spent in the economy.
Now, Mr. Chairman, you have also noted that student loan
debt has another impact on a struggling economy, and that is
that student loan debt makes it harder for people to qualify
for mortgages, to buy homes, to start small businesses. You
have noted that those things drag our economy down. Do you
still feel that way?
Mr. Powell. Yes, so I think data are showing that over
longer periods of time, people take on student debt in an
effort to make their lives better and brighter, and if that
does not work out that way, they drag that debt down through
their economic lives, and it can get in the way of their credit
history, of course, and their ability to own a home and their
whole economic life for many years.
Senator Warren. Right, and then that has an overall impact
on the economy in terms of home sales or in terms of business
startups. Is that right?
Mr. Powell. Yes. In effect, those people are unable to
participate perhaps in the economy to the full extent that they
might be able to, which would weigh on the economy.
Senator Warren. Thank you, Mr. Chairman. You know, I know
you have said you do not know how you could be clearer on
pushing Congress to act on more fiscal stimulus, and I agree
entirely with you on that. But most types of economic stimulus
are pretty much impossible when Republicans in Congress refuse
to take action. Aid to State and local governments,
unemployment benefits, checks for families--right now
Republicans are blocking help on all of these. But student loan
debt is different. All on his own, President-elect Biden will
have the ability to administratively cancel billions of dollars
in student loan debt using the authority that Congress has
already given to the Secretary of Education. This is the single
most effective economic stimulus that is available through
Executive action, and as you have noted in the past, research
shows that canceling student loan debt would boost GDP, create
jobs, reduce unemployment, jump-start small business formation,
support the housing market, promote job and economic and
geopolitical mobility, and increase the annual incomes of
borrowers by about $4,000. So it would also help close the
racial wealth gap. It is time to act. Thank you very much.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
And next will be Senator Schatz.
Senator Schatz. Thank you, Mr. Chairman. Thank you,
Secretary Mnuchin and Chair Powell, for participating in this
hearing and for your really extraordinary efforts during this
difficult time.
My first question is for Secretary Mnuchin. Where are we
with negotiations? You have been lead negotiator on behalf of
the Administration when we were successful and lead negotiator
when we were not as successful. And I just want to get a sense
for the public and for the whole Congress so that we are not
just reading this on Politico where we are with respect to
coronavirus relief, whether the idea is to pass a stand-alone
package from your perspective for something to ride on the
omnibus, and what would your priorities be?
Secretary Mnuchin. I had a conversation yesterday afternoon
as well as this morning, a follow-up conversation, with Mitch
McConnell, Kevin McCarthy, myself, and Mark Meadows. I spoke to
the President this morning and updated him. We all believe that
there should be targeted fiscal response. I would say that my
motivation in the Fed facilities was not political. As I said,
it was purely legal. But those funds can be reallocated. The
PPP money can be reallocated. I would say things like PPP and
unemployment that are running out are high on the list.
I will be speaking to Speaker Pelosi this afternoon about
the Government funding. We obviously did not intend for there
to be another CR. We signed the 2-year caps deal. We wanted to
get funding done. And I am sure I will speak to her about CARES
funding as well. So we support targeted, quick relief.
Senator Schatz. OK. And I will just editorialize for about
30 seconds here. You know, the election is over, and lame ducks
are for doing necessary things that we were fighting about
previously. That is what a lame duck is for, and especially
during a pandemic, that is what a lame duck is for. And so we
all need to put our weapons down, and I applaud the efforts of
Senators Warner and Collins and Coons and others, because we
really need to deliver relief, and especially because we need
to recognize that if we cannot get something done during a lame
duck during a pandemic, that says something about all of us and
our unwillingness to find a middle ground.
A separate topic for Chair Powell. I am really encouraged
to see the Fed discuss climate risks in their semiannual report
on financial stability. You and I have had several exchanges in
the past few years about the financial system's vulnerability
to climate shocks, and I am really pleased to see the Fed
address this issue head-on. The report calls for increased
transparency through improved measurement and disclosure and to
improve the pricing of climate risks.
So the question I have for you is: What specifically should
companies be disclosing to enable the accurate pricing of
climate risks?
Mr. Powell. Of course, corporate disclosure is really
something that we do not have responsibility for. I think what
we are talking about is sort of a general idea. At this stage,
it is an early stage in trying to understand the implications
of climate change for financial stability, and thank you for
calling out our box. I thought that the box we put in our
Financial Stability Report did a good job of laying out the
connections that we do see. But I think we are a long way from
understanding really what that means. I think the public will
expect that we do figure out what are the implications of
climate change for financial stability and that we do put
policies in place. Some of that will be through disclosure, and
some of it will be through many other channels.
Senator Schatz. So the Fed staff is actively conducting
research on climate-related financial risk. What kinds of tools
are you developing and what kind of data sets do you need to
measure that risk?
Mr. Powell. Well, again, it is early to be talking about--
really, as you pointed out, there is a great deal of research
going on in the economics community and, you know, we have
probably the largest economic staff certainly in the United
States, one of the largest in the world, and there are people
working on climate change and the implications of climate
change for the economy and for financial stability. And it is a
little early to say exactly what those tools will do, and I
guess I ought to start by saying that the broad response to
climate change on the part of society really needs to be set by
elected representatives--that is you. We see implications of
climate change for the job that you have given us, and that is
what we are working on, is just that aspect of it. The broader
aspect of it really is for elected representatives.
Senator Schatz. Absolutely. And, Chairman, I agree with
you. Risk is risk. You are charged, at least partly, with
measuring the risk in the financial system. You are not charged
with solving climate change. That is the policymaking part of
the Government. But it is important that you fulfill your
statutory mandate to make sure that risk is measured
accurately.
And one final thought here. I am not sure it is so much
that it is early. I think it is more that this stuff is hard.
And I concede that this stuff is difficult, that we want to
develop common platforms, we want to develop common tools and
data sets so that we do this intelligently and responsibly. But
it is not early. It is just that this stuff is difficult to do,
and we want to give you the space to do it right. But we cannot
take several years to develop these tools and data sets.
Thank you.
Chairman Crapo. Thank you.
Senator Kennedy.
Senator Kennedy. Thank you, Mr. Chairman.
Chairman Powell, has the Federal Reserve done a State-by-
State analysis of how much money State governments have
received from Congress to bolster their economy and how much of
that money they have left to spend?
Mr. Powell. Senator, I am confident somewhere in the
Federal Reserve System that information does exist. I do not
have it close to hand, though.
Senator Kennedy. Well, what does that information show?
Mr. Powell. Honestly, I would have to get the information
in front of me to be able to answer that.
Senator Kennedy. Then how do you know State governments
need more money?
Mr. Powell. Well, I did not say today that they did need
more money. But I would say we do know that at the aggregate
level--I can give you some data that I believe is true, and
that is that States that have particularly high sort of tourism
as part of their economy are feeling this significantly, and
they have got much lower tax revenue, so they are feeling that.
States that do not really have exposure to travel and leisure
may not have had much of an effect at all. So it does vary
quite a bit. But there are States--I think Florida, for
example, I read has lost something like 11 percent of its
revenue overall. I cannot fact-check that in real time here,
but that is a statistic that I saw. So I think it varies a lot
State to State.
Senator Kennedy. On November 16th, the Wall Street Journal
reported that California recently reported that its tax revenue
for this fiscal year is running 19 percent above projections.
Do you disagree with that?
Mr. Powell. I do not have any reason to, no.
Senator Kennedy. In the same analysis, the Journal reported
that personal income tax revenue in October in California was
$1 billion or 16 percent higher than the previous October, and
sales taxes were up 9.2 percent. Is that consistent with the
Fed's information?
Mr. Powell. I have not seen any information at the Fed. As
I mentioned, I think the bigger fact is that State and local
government revenues, tax revenues, have been less affected so
far than we thought they would, and there is a lot of research
on why that might be. Nonetheless, State and local governments
have laid off more than a million people, and some States are
feeling this. The ones that are more exposed to the travel and
leisure industry, for example, are actually really feeling that
pinch.
Senator Kennedy. The Wall Street Journal on November 16th
also reported that in New York State, overall tax revenue was
up 4.3 percent in September compared to September 2019. A large
part of the reason for that is that New York State taxes
unemployment benefits. Do you have any reason to disagree with
that?
Mr. Powell. No, sir.
Senator Kennedy. OK. The Journal also reported that
personal income tax revenue in Connecticut increased 2.9
percent in September from the previous year, and in the fiscal
year that started in July, income tax receipts in Connecticut
are running 0.3 percent ahead of last year and sales tax
revenue is up 5.3 percent. Do you know if that is accurate or
not?
Mr. Powell. I do not.
Senator Kennedy. OK. Do you believe that Congress should
appropriate money to States and allow those States to use that
money to support their pension systems?
Mr. Powell. I think that is a question for you, sir.
Senator Kennedy. Well, I am asking you, Mr. Chairman. You
have been pretty vocal about--and I am not being critical. I
appreciate the advice, but about the need to pass another
coronavirus bill. Do you think we should allow the States to
use the money to shore up their retirement systems?
Mr. Powell. I think States provide critical services. I
think at least some of them had significant hits to revenue. I
think they have laid off more than a million people. They are
very big employers, one of the largest employers in the
economy. So I have always said it is an area where I think it
is worth looking, an area----
Senator Kennedy. Don't you think--I am sure you would agree
with this. Don't you think, though, that before we appropriate
more money, we should actually base the decision on empirical
data like how much have we given each State, how much have the
States spent, how much have they just--how much of that money
do they have still just sitting there? Don't you think we ought
to approach it as opposed to just using anecdotal evidence?
Mr. Powell. Certainly, I would not recommend you use
anecdotal evidence, but really these questions are way off my
range. You know, we do not have views or express views on
really specific fiscal questions. We try to stay at a high
level.
Senator Kennedy. Thank you.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Van Hollen.
Senator Van Hollen. Thank you, Mr. Chairman. And thank you,
Chairman Powell, Secretary Mnuchin, for your testimony.
Listening to both of you, there is clearly agreement that we
need more fiscal relief.
Mr. Chairman, you said on October 6th that, ``Too little
support would lead to a weak recovery, creating unnecessary
hardship for households and businesses.'' And more recently, as
the cases from the pandemic have accelerated, you have said,
``There has not been a bigger need for it in a long time,''
meaning fiscal relief. And President Trump in October tweeted
out, ``Go big or go home'' to Congress.
Just picking up on Senator Schatz's comments and others',
we do need to get this done. We cannot go home before the end
of December without addressing the urgent needs and the pain
that American households and small businesses are facing.
So, Chairman Powell, first to you, I assume you agree today
with the statements you made previously about the urgent need
for substantial fiscal relief.
Mr. Powell. When I said this is the most urgent need, I was
talking about the whole pandemic. I was talking about, you
know, the need for the CARES Act and I was not trying to speak
about the need for another full CARES Act at that point in
time. That is what I believe I was referring to. It is a couple
of months ago. But, yes, my view really has not changed. I
think that the risk of overdoing it is less than the risk of
underdoing it. That is the record of pandemics and crises. You
know, people are always worried about doing too much, and you
look back in hindsight and you say, ``Well, we did not do too
much. We might have done a little more and done it a little
sooner.''
I think we tried to live with that lesson this time with
the CARES Act and with the things that the Fed did and other
parts of Government. We really did act aggressively.
So I would just say that we have come a long way. The CARES
Act did a tremendous amount of good. We can see what may be the
light at the end of the tunnel with the vaccines, and we at the
Fed will keep at it until we are really done, and I think that
some fiscal support now would really help move the economy
along as well, at least to guard against those downside risks
we have been talking about, smaller businesses, households, and
others who are directly affected.
Senator Van Hollen. Well, I agree, and with respect to
State and local governments, I was listening to your discussion
with Senator Kennedy, and I would say 1 million people who have
lost their jobs is not anecdotal. That is real. As you pointed
out, those are people who no longer have an income and,
therefore, are relying on a safety net until we get everybody
back to work.
Secretary Mnuchin, again, I quoted President Trump back in
October saying to Congress, ``Go big or go home.'' Just
recently he tweeted again, ``Go big and be focused. Make it big
and focused.'' So do you share the President's view that we
continue to need to go big on fiscal relief?
Secretary Mnuchin. I do believe we need more fiscal relief,
and I think there is more work to be done. As I said in my
testimony, I think fortunately the CARES Act has worked and the
numbers are better than they were 2 months ago. But I would
urge Congress to pass something quickly to make sure we get
something done in this session.
Senator Van Hollen. I could not agree with you more, and I
know that you were engaged for a period of time with Speaker
Pelosi and others. What was the Trump administration prepared
to do in terms of its top-line number at that time? Because the
Chief of Staff to the President was quoted as saying somewhere
around $1.2 trillion or more. Is that accurate?
Secretary Mnuchin. Well, I think as you know, we made lots
of proposals along the way. There were different proposals and
different components, and as I said earlier, I spoke to Leader
McConnell and McCarthy and Meadows this morning, and the
President, and we will continue to work with Congress to try to
get something done quickly.
Senator Van Hollen. Mr. Secretary, you would agree it would
be a mistake to allow the emergency pandemic unemployment
insurance to expire at the end of the month, right?
Secretary Mnuchin. I do believe that is one of the areas. I
think there needs to be some technical fixes, but I do support
extending it. I also absolutely support the unspent money in
the PPP being authorized to be used immediately.
Senator Van Hollen. And you also supported--I was the
President did--funding for some State and local government
relief. I can tell you I had a conversation this morning with
the general manager of the Washington Metro Transit System. You
can read on the front page of the Washington Post Metro Section
today that they are going to lay off 1,200 people in December
and that their budget for next year, if they do not get any
more relief, contemplates another over 2,000 people.
So I hope we will all recognize that we have got to do
something. There seems to be a lot of running room between the
two positions that have been outlined, and I just think it
would be shameful if Congress goes home and the
Administration--if we are not able to do this before the end of
the month.
So thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Jones.
Senator Jones. Thank you, Mr. Chairman. And thank you to
both of our witnesses for your service.
Secretary Mnuchin, you and I have not had as much personal
interaction, but I wanted to tell you how much I appreciate
your service in some difficult times over the last 2 or 3
years.
Chairman Powell, thank you very much for allowing me to get
to know you, for the work we had. I so much appreciated the
fact that even though your nomination was going to sail through
the U.S. Senate, you still made a point of coming to visit with
me as soon as I got sworn in in January of 2018 to get to know
me and to understand the office and my work on the Banking
Committee. So thank you for that.
I would like to kind of revisit something that I have
talked about on many occasions, and that is the racial
inequalities that we witness in this country.
As the Nation kind of grapples with the racial inequality
we have seen, the Federal Reserve's recent survey of consumer
finance kind of caught my eye. It highlights longstanding,
substantial wealth disparities between families in different
racial and ethnic groups. The typical white family has eight
times the wealth--eight times the wealth--of the typical black
family and five times the wealth of the typical Hispanic
family.
Raphael Bostic, President of the Federal Reserve Bank of
Atlanta, recently published a paper arguing that the country's
racial economic gaps were cemented over centuries and called on
the Fed to reduce racial inequalities and bring about a more
inclusive economy.
Let me say very quickly that I know coming from a State of
the Old Confederacy that most people think that some of this is
just based on the State Jim Crow laws of years past. But, in
fact, we all know that this is not just a Southern problem; it
is not just a Jim Crow problem. Those policies had been
cemented by policies of the Federal Government, laws passed by
this Congress, maybe giving some accommodation to white
Southern segregationists who were in the House and the Senate
at the time, but laws of housing, health care, even the GI bill
really kind of cemented the inequalities that have lasted now
for decades.
So initially to you, Chairman Powell, as we go forward--I
do not want to look back right now. I want to look forward,
because as we are coming out of this pandemic, we have got some
real opportunities, I believe, to address these inequalities in
health care and the economy in so many areas. So what can the
Fed do as we come out of this economy? What strategies would
you recommend to kind of address the inequality we see in the
economy, whether it is minority businesses or individuals?
Mr. Powell. So these are longstanding inequalities over a
very long period of time, and there is a real concern that we
have at the Fed that the pandemic will make that worse because,
of course, minorities are overrepresented in these service
industry jobs that were so heavily affected by the pandemic, so
there is a concern that things will get worse. And, you know,
the last couple of years were very encouraging because as the
longest expansion in our recorded history continued, we
actually saw the racial unemployment gap diminishing to its
lowest level since we began measuring it. And so it is really
disappointing to see that.
So what can we do going forward? You know, the most
important thing we can do at the Fed, I think, is to take
seriously the job of achieving maximum employment, and we have
now changed our operating framework to acknowledge that maximum
employment is a broad and inclusive goal, and by that we mean
that we are going to look at various different measures of
labor market conditions, including minority unemployment rates,
frankly, and minority participation, labor force participation
rates and wages and things like that. We are going to look at
all of those things as we try to achieve our maximum employment
goal.
The last thing I will say is I think we also enforce fair
lending laws in our Division of Consumer and Community Affairs.
We need to continue to do that rigorously. Ultimately, though,
we will do whatever we can with our tools, but really it is
going to take a broader attack on these problems than just the
Fed alone can mount.
Senator Jones. Thank you, Mr. Chairman.
Secretary Mnuchin, I have got just a few minutes left. Any
advice that you would give--a few seconds left, actually. Any
advice that you would give to the incoming Administration or
the incoming Congress about how to address these from an
economic standpoint?
Secretary Mnuchin. Well, as I mentioned earlier, I do think
the CDFI investments are something that can be done quickly
that will particularly help minority and underserved
communities.
Senator Jones. All right. Thank you, Mr. Secretary.
Mr. Chairman, if you would bear with me just a couple more
seconds, I wanted to express my appreciation to you and the
Ranking Member and to all the Members on the Committee for the
work that we have had together over the last 3 years. It has
been remarkable to work with you, to watch the two of you work,
but also the work that I have done with other Members on the
Committee on both sides of the aisle. It has been an honor and
a privilege to work with the entire Committee. I hope that as
you, Mr. Chairman, move over to another Committee and assume
additional duties, Chairman Toomey or Ranking Member Toomey, as
the case may be--we do not know yet--will carry on the work of
this Committee. I have really enjoyed my time with you over the
last 3 years, so thank you both very much.
Chairman Crapo. Thank you, Senator Jones.
Senator Tillis.
Senator Tillis. Thank you, Mr. Chairman. I want to thank
both Senator McSally and Senator Jones for their service on
this Committee. They were serious legislators, and I had the
opportunity to work with both of them.
I also want to thank you for your leadership. You will
leave it in good hands, but I am going to miss you as our
Chair.
Gentlemen, thank you for being here. As I heard the
discussions--I had to go vote. I am sorry I was not here for
the whole of the hearing. But I remember vividly back in March,
when we were negotiating--the ``we,'' I say, with Secretary
Mnuchin and members of the Senate working together--we had an
underlying set of assumptions, some that proved to be true,
some did not. We knew we needed to do something big, bold, and
fast. Then we came up with the CARES Act. And I think the
Paycheck Protection Program saved a lot of jobs. I also think
the Main Street Lending Facility was a necessary facility even
though at the time very few of us thought that it would be
fully subscribed, and that has proven to be true.
We also made certain assumptions about how long this virus
was going to impact the economic base. There were a lot of
people thinking 90 days, 6 months, on the out side maybe the
end of the year, which was the basis for the date that
Secretary Mnuchin mentioned.
Well, things have changed, and I for one think that we do
have to provide a bridge to what should be a trending positive
environment maybe sometime in the second half of next year if
we make certain assumptions about the manufacturing and
distribution of the vaccine that I think can be valid with the
historic approval of two vaccines in less than a year.
But, Secretary Mnuchin, I have to remind everybody of what
you have said. You have said that you think that these dates
are important and that Congress needs to act. But you have also
in the same breath said that we need hundreds of billions of
dollars more in the Paycheck Protection Program to provide that
bridge, that stabilization. Is that your basis for that, that
we just need to cover that window of opportunity probably
through the second half of next year?
Secretary Mnuchin. That is correct, maybe the first quarter
or second quarter.
Senator Tillis. And, Chairman Powell, I think you feel the
same way. I do not think that we are necessarily talking about
something on the scale of either the first CARES Act or the
HEROES Act, but something that does provide some of the
fundamentals for the businesses, and I think that they do need
to be grants, not loans. But do you agree with that window that
we really need to provide the bridge based on the inmate we
have today?
Mr. Powell. I think the bridge is exactly the right way to
think about it. I do not have a view on exactly how much that
needs to be, but that is the way we can see the end. We just
need to make sure we get there.
Senator Tillis. One thing--and, Chairman Powell, this may
be for you--of the 10 million jobs that are still outstanding,
has there been any analysis on the length of time that they are
likely--in North Carolina, we have about 19,000 restaurants;
4,000 of them have closed permanently. So there is a structural
element of unemployment where, even when the economy comes
raging back, the job creators are not going to come back in
time to see pick-up saving in the second half.
So do we have any analysis on the amount of unemployment
that, if we provide additional stabilization funds, if we see
the trending in the right direction with the vaccine--what is
our structural deficit for that remaining unemployment? How
much of that is structural long term versus likely to bounce
back as the economy bounces back because the jobs are there as
the business reopens and expands?
Mr. Powell. That really is the big question we have been
asking ourselves, and you have to make a lot of assumptions to
have an answer about that. It really is what does the
postpandemic economy look like, and I think the faster we get
there, the sooner the vaccines arrive, et cetera, then the
smaller that number of people who are structurally unemployed
will be. And there are various numbers. We will be happy to
share something with you, with your office, if you would like.
Senator Tillis. In my closing time, number one, I just want
to thank you all for the extraordinary leadership in the job. I
want to thank the banking industry for actually being a partner
that helped us make the Paycheck Protection Program a success.
I believe that we have to look at programs to take a look at
the first-in, last-out industries. We have talked about a lot
of them, restaurants, live performances, motor coaches,
transportation. There is a lot of work that needs to be done,
but I do not think anyone can rightfully criticize or suggest
that the CARES Act has not been anything short of the MVP for
stabilizing the economy when we hit the crisis, and you guys
were two people on the team that made it successful.
I do not believe that we should be asking Secretary Mnuchin
to do Congress' job. If Congress is serious about funding
Paycheck Protection, if they are serious about stabilizing the
economy, then get serious about passing a follow-up to the
CARES Act.
Thank you, Mr. Chairman.
[Pause.]
Senator Tillis [presiding]. And now I guess I am Mr. Chair.
Senator Cortez Masto.
[No response.]
Senator Tillis. Senator Smith.
Senator Smith. Well, thank you, Mr. Chair. And hello,
everyone.
First, I just want to say it does my hear good to see my
colleague Senator Doug Jones, who I am used to sitting next to
on the Banking Committee, and, Doug, I just want to thank you
so much for your service, and we are going to miss you. And
thanks also, of course, to Senator McSally.
I know that the Chair is not here, but I want to also thank
Chair Crapo for his leadership. He has been nothing but
welcoming to me, and I think, though, as Ranking Member Brown
said, we do not always agree, I always feel that there is a way
for us to work together, which is so important.
I want to just start by saying I want to add my voice to
the many voices on this Committee today who have said that it
is really important that we get something done to help families
and small businesses that have been really struggling through
this pandemic. We have got to get something done. And I also
agree that we should not make perfect be the enemy of the good
here. That is what I am hearing in Minnesota. And I have to say
I have never worked anyplace where I heard more people talking
more loudly about the need for action with less action
happening.
I have not had a chance to see what our colleagues, a
bipartisan group, have put together yet this morning, but I am
encouraged by that and hope that that will take us somewhere.
And I might ask my Republican colleagues to bring this up with
Senator McConnell when you all have lunch together in a couple
of minutes, because there is a great need for action here.
I want to actually pivot to something and have a little bit
of a dialog with you, Chair Powell, about this. You have used,
I think very appropriately, this metaphor of how we need to
build a bridge to a postpandemic recovery. You point out that
our economy has been responding better than we expected, but we
still have a really, really long way to go.
And, you know, we also know that we are seeing long-term
trends in inequality which make it harder and harder to
generate the economic activity, the spending that is going to
drive growth in the long term, and that is what we see because
of raising long-term trends in inequality that are holding back
spending for families of color, minority businesses of color.
This is something several of my colleagues have brought up
today.
So, Chair Powell, could you just talk a little bit about
this? And I am especially interested in using your bridge
analogy. You know, what are the risks of not building this
bridge? What happens if we do not take this action right now
and the long-term impacts of this growing inequality on our
economy postpandemic?
Mr. Powell. Thank you, Senator Smith. So these disparate
economic outcomes across racial and other lines are a
longstanding feature of our economy. They have been with us for
a very long time, and there is a great risk that the pandemic
is making them worse because the people who are most affected
by the job losses were people in relatively low-paying parts of
the service industry that happens to skew more to minorities
and to women. And so there is a real concern that if we do not
act as quickly as possible to support those people, get them
back to work, get the economy up and running as much as
possible, that we will leave behind a more unequal situation,
which is tragic because we actually had been making good
progress on these issues for the last few years. As the very
long expansion, the longest in our recorded history, went on,
we started to see the gains go more to people at the lower end
of the income spectrum. We saw racial income gaps declining,
racial gaps in labor force participation, and unemployment
declining. We saw some very constructive things. But waiting
for the eighth or ninth year of an expansion is not a perfect
strategy.
So I think there really is an issue of wanting to do as
much as we can to avoid exacerbating these longstanding
differences and get back to a strong economy where we can start
making progress again, which is what we were doing just back in
February.
Senator Smith. Right. And, you know, as the Fed Chair and
as the Fed, you have the dual mission of low unemployment and,
you know, managing inflation, hitting inflation target rates.
What if the Fed, in this need to spur job growth--and we see
that there has not been a big worry about inflation in the long
term. What if the Fed were to lower its target for employment,
you know, lower to 3 or even under 3 percent? What impact might
that have on addressing long-term needs for addressing
inequality?
Mr. Powell. Actually, we have made a change in our
operating framework which I think addresses that directly, and
that is, while we are going to have an estimate of the natural
rate of unemployment, we are not going to act on that, even if
unemployment goes below that, unless we see inflation or some
other problematic thing that seems to be linked to where our
rates are. So we are not going to preemptively raise rates
until we see actual inflation now as a consequence of low
unemployment. And I think that is a lesson that we learned
during the last expansion when we saw very low, 50-year lows in
unemployment with really no--and very high participation,
really as strong a labor market as we have seen in my lifetime
without inflation acting in a way that was concerning.
Senator Smith. Thank you, Chair Powell.
Thank you, Mr. Chair. And I also want to extend my thanks
to Secretary Mnuchin for his service. Thanks very much,
everyone.
Secretary Mnuchin. Thank you.
Senator Tillis. Senator Cramer.
Senator Cramer. Thank you, Mr. Chairman. And thank you to
the two witnesses, of course, for being here.
Let me just also say congratulations to Chairman Crapo on a
wonderful 2 years as Chairman. You have been great to me and to
the whole Committee, and I really appreciate your approach.
Also, thank you to Senator McSally and Senator Jones. We
will miss you both, and we are very grateful for your service.
Now, it should not surprise anybody that the issue on my
mind and one that I pretty much wake up thinking about every
day and wondering how we are ever going to tackle it, of
course, with the CARES Act is PPP forgiveness. Secretary
Mnuchin, I just want to address a couple things directly to
you. You know, of course, that Senator Menendez and I, along
with Senator Tillis and Senator Sinema and about 28 of our
closest friends and allies from both political parties have
introduced a forgiveness bill, Senate bill 4117. It takes all
the loans at $150,000 or less, a one-page attestation, and
those would be forgiven. Those $150,000 and less loans make up,
like I said, 85 percent of the total loans but only 26 percent
of the dollar amount.
Both of you, both Chairman Powell and Secretary Mnuchin,
have said during this hearing that what businesses need are not
loans but they need grants. Well, forgiveness was a major
component of our bill, and once again, in my view, Congress did
what it often does, and it does not prescribe enough of a
solution, it allows the bureaucracy, which I fear more than the
devil himself, frankly, to come up with their own rules and
regulations that are always aimed at CYA, no understanding of
how a business operates or how it keeps employees. But when we
passed PPP, as you will recall, it was designed to largely be
forgiven. It was designed to keep people on the payroll so they
avoided the unemployment rolls. We encouraged, almost forced,
small lenders and small borrowers to use the program. I have
talked to literally hundreds, multiple times, hundreds of
community banks, consumer banks, large banks, credit unions,
even Farm Credit Services about PPP and why it needs to be
utilized. And yet here we are still waiting for another
package. It is my hope, desire, conviction to work my tail off
to prescribe a solution to this.
But in the meantime, Mr. Secretary, I have been very
disappointed in SBA's response. They seem to use, like the
bureaucracy always does, their discretion to the advantage of
the Government, not to the advantage of the small business. Let
me give you just some specific examples that I have heard from
my constituents. I am going to give you one borrower example,
small business, pretty typical, I think. Here is what they
wrote to me: ``Senator Cramer, please help.'' That is the
opening line. ``With Congress not passing a new stimulus, it
leaves many small businesses in a bind. The problem is as we go
to our bank and ask for an operating loan, they tell us, `Not
until you get your PPP forgiveness.' ''
Now, why haven't they gotten it? You know, we have been
pretty instructive on this.
``The bank says until we receive notice from SBA that the
original PPP loan has been forgiven, they are not going to give
us the money.''
Here is how slowly they are working on this particular
loan. This is a loan of just right at about $100,000. They have
moved so slow that they needed some pressure from us. So we
applied that pressure, and here is what it took. It took 9
weeks--9 weeks, Mr. Secretary--to forgive a $100,000 loan where
the program was designed for it to be forgiven. This is a small
motel-hotel operation in Bismarck. Nine weeks. And guess what?
It took really 9 weeks and 1 day because the day that we made
the call to inquire at SBA, it finally forgave the loan.
Now, this is one, this is just one example out of hundreds,
maybe even thousands. Here is one from a lender before I let
you answer. Here is a lender that says, ``Just reaching out as
FYI. SBA has requested additional documentation on 5 percent of
the loans ranging from $3,700 to $134,000, an average of
$33,000 per loan. It is a waste of time.''
So the bureaucracy again always does what the bureaucracy
is going to do.
Mr. Secretary, this is very disappointing. This is very
disappointing to people who did not even want to take loans.
They could have laid all of these people off. They could have
gotten that very generous unemployment extension program. But
they trusted us, and SBA did just what we knew the bureaucracy
is always going to do. They have extended the time. They have
asked for more documentation. They have put more demands on
them. The cost to comply is now $2,000 per borrower, and it
amounts to billions of dollars.
Obviously, my time is up. I would love to hear more from
you. I have got lots more to say about it. But we have got to
do better than this, Mr. Secretary.
Secretary Mnuchin. I agree with you. We need to do better,
and we support legislation to help forgiveness.
Senator Cramer. But in the meantime, use the discretion.
Please use the flexibility that the agency has and tell the
bureaucracy to stop being such a bureaucracy.
Secretary Mnuchin. We will.
Senator Cramer. There is a big disconnect between the
bureaucrat and the business and billionaires and the business.
We need small businesses to thrive.
Chairman Crapo [presiding]. Thank you.
Senator Cortez Masto.
Senator Cortez Masto. Thank you. Gentlemen, thank you. It
is great to see you again. I so appreciate you being here.
Let me jump right into it. As you know--I talk to you about
this all the time--I come from Nevada. The hospitality and
leisure industry has been so hard hit. Nevada's unemployment
rate now is more than 12 percent. We know that more than
175,000 people continue to claim unemployment insurance. Just
the statistics from the American Hotel and Lodging Association
that nearly 70 percent of hotels may close by the end of this
year if they do not receive additional Government funding. And
I will tell you, in Las Vegas and Reno, employment in our
hospitality and leisure sector is down nearly 25 percent and 14
percent, respectively. So let me start there with both of you.
Secretary Mnuchin, what is the Administration and/or what
are you advocating moving forward that we should do to address
really the impact that we are seeing on our leisure and
hospitality industry?
Secretary Mnuchin. Well, specifically--and I agree with
you, this industry has been devastated--I believe that the PPP
could immediately help people. I think that the airlines have
also been devastated, so we support additional relief for the
airlines. But hotels, small businesses, entertainment, all of
these companies could access the PPP.
Senator Cortez Masto. Well, let me jump back there, because
when I talk about hospitality and leisure, I am talking about
restaurants, I am talking about live events, and if they are
accessing the PPP, they are not looking for loans. And I think
you said it earlier. It is not the loans that help. It is the
grants. Isn't that correct? Shouldn't we be looking at
providing them more opportunities for grants than loans that
they have to pay back?
Secretary Mnuchin. Well, the PPP, if it is used correctly,
is a grant, so it is a loan that should get forgiven without
the bureaucracy. But, yes, the PPP is effectively a grant, and
that is what they need, not more loans.
Senator Cortez Masto. Yeah, effectively it is. But as we
have heard, there are challenges with it and ensuring--and I
think the confusion even for these businesses is whether that
will turn from a loan into a grant is still questionable for
many of them, and that is why we are seeing the concerns that
we see for so many not even applying.
Let me ask you, Chairman Powell, I know you and I have had
this conversation. Again, do you believe that the hospitality
and leisure industry needs another stimulus package like a
comprehensive package for relief to sustain this industry?
Mr. Powell. I would agree that the industry had really been
devastated, and the two things it needs is for the pandemic to
be over, which we really cannot do, and it needs grants, which
we also cannot do. Our loan programs are really not--you cannot
overgeneralize, but for most people, most businesses in that
industry, really what they need is more fiscal support.
Senator Cortez Masto. That is right. And so let me jump
back then to another conversation that I have heard on State
and local governments. Let me just reassure you, gentlemen,
that the States and local governments need an additional
relief. My State does, the State of Nevada, for the very
reasons that I am talking about. We have a budget hole of over
$1 billion. But that is just not Nevada. That is all of the
States. There is bipartisan support that I have seen, and as
most recently as September of this year from the National
Governors Association, bipartisan support for additional relief
for State and local governments for the very reasons that we
are talking about. And so this idea that there are red States
and blue States or States do not need it or they are going to
misuse it I think is a misnomer. It is getting in the way of
really the needs that we have across this country in a
bipartisan way.
So let me just reassure you, Governors from Republican and
Democratic States--or Republican and Democratic Governors are
both asking for additional relief for State and local
governments, and we need it for the very reasons I have just
talked about.
But let me ask you this. Secretary Mnuchin, jumping back to
the $454 billion that was appropriated to the Federal Reserve's
Exchange Stabilization Fund, is it your position that by the
end of this year, if Congress does not make changes or change
the legislation, that not only your authority stops but that
you will actually transfer those additional funds back to the
State treasury?
Secretary Mnuchin. Well, I have commented on this several
times already, and I will repeat it again. My actions are not
economic; it is purely my interpretation of the law. I think
the section was pretty clear. I cited it earlier. I would be
happy to follow up with you or anybody else on this. And as
regards to when the money comes back, it is fully prescribed
within the law what happens to the money, so there is no
discretion on my part.
Senator Cortez Masto. OK, and that is what I want to get
back to, because I absolutely agree with you. It is very
specific in the law, the termination of the authority, of your
authority, but it is also specific on where that money is
supposed to stay, and that you do not have the authority to
transfer it under this law. And I just wanted clarification of
that. If your legal authorities are telling you something
differently, or your attorneys, I would like to know that,
because the way I read it, you do not have the authority to
transfer this money back to the Fed, under at least the CARES
Act authority. So please share that with me.
And I know my time is running out, and I will submit the
rest of my questions for the record.
Let me just say, Secretary Mnuchin, thank you for your
service. It is not an easy thing to do, particularly in this
atmosphere where there is so much partisanship. I appreciate--
we did not always agree, but I appreciate your service, so
thank you.
I also want to thank my colleagues Senators McSally and
Jones. I have enjoyed working with them, and their
contributions to this Committee have at least helped me
understand as well numerous issues that impact this country in
our financial sector. So thank you all again for your service.
Secretary Mnuchin. Thank you.
Chairman Crapo. Thank you.
And our final Senator who will be telephone is Senator
Sinema.
Senator Sinema. Thank you, Chairman Crapo, and thank you to
our witnesses for being here today.
You know, Arizonans are struggling to make ends meet during
the pandemic, and I regularly hear from families and small
businesses back home that are concerned they will not make it
through the winter, especially since coronavirus cases are
spiking across the country. By passing the CARES Act and
authorizing the Treasury Department's backing of the Federal
Reserve's emergency lending facilities, we lowered borrowing
costs for households and businesses alike, protecting jobs and
stabilizing our economy as we continue to fight the
coronavirus.
With cases on the rise, now is not the time to pull back
critical support for families and businesses in Arizona, and
that is why I am disappointed by Treasury's decision to
withdraw financial support for the lending facilities,
particularly the Main Street Lending Facility. It moves us in
the wrong direction and puts it really further out of reach for
people that desperately need it.
So, Secretary Mnuchin, recognizing that many U.S.
businesses need direct relief as well as access to credit, do
you believe that businesses, particularly local restaurants,
retail businesses, and those in the hospitality industry, have
what they need right now to survive the winter?
Secretary Mnuchin. No, I do not. I think that is why I
encourage Congress to authorize us to spend the $140 billion of
unspent PPP money so we can give them second loans that, if
used properly, will turn into grants and save lots of jobs.
Senator Sinema. Well, this is an area where we agree,
Secretary Mnuchin.
Secretary Mnuchin. Thank you.
Senator Sinema. And I also think that those dollars should
be released and used by businesses around the country.
I do hear from business leaders across the State, though,
that we need to expand and improve, not retreat, the lending
facilities. And so I am hearing from folks at home that many
small and mid-sized businesses in Arizona will not make it
without additional relief, and if they cannot get direct
relief, they should at least get access to credit. I think they
should have both. And, of course, this is not just about the
businesses. This is about the small business owners and the
workers and their households. There is a lot at stake here, and
families, jobs, and their homes hang in the balance.
You know, back home in Arizona, most people do not think
that Washington cares very much about what happens to them, and
my concern is that decisions to end the Main Street Lending
Facility, where things are getting caught up in partisanship
and procedure and people are losing sight of the end result, it
makes me think that folks in Arizona might be right to have
given up on Washington.
Now, Secretary Mnuchin, if you could just briefly respond
to my question about the Main Street Lending Facility, we agree
on funding for PPP, but I would like to hear your thoughts
about the Main Street Lending Facility and why you think that
this should be eliminated or ended for mid-sized businesses in
Arizona and throughout the country?
Secretary Mnuchin. Well, again, my reason of why it should
be ended is because there is a December 31st termination date
in the law. I think it is very clear. I have already cited the
section. I have it with me. I will not go through it again. I
would be happy to send it to you. Congress can extend it. I
personally think that EIDL loans out of the SBA are more
effective.
One of the problems with the Main Street Facility was that
a lot of those small companies that are doing well had access
to banks, and the companies that did not did not fit the
program. But, again, it was not a judgment on my part. It was
merely following what the law prescribes.
Senator Sinema. Now, Secretary, I know that Senator Cortez
Masto asked to see the legal reasoning for your decision to end
it. I would like to see that as well.
You know, we have known about some concerns around the Main
Street Lending Facility for months. In our last time together,
I lamented the fact that I believe that Treasury and the Fed
jointly set these terms too stringently and that many
businesses in Arizona were unable to take advantage of them. So
I would like to reiterate that I believe that the program
should be continued and that eligibility should be expanded for
the facility and the term sheet should be changed so we can
help more businesses in need.
Now, Chairman Powell, I have seen your take on this, and I
know that you and Secretary Mnuchin do not agree on the
extension of the Main Street Lending Facility. Do you think
that households and businesses will risk having lower or higher
borrowing costs because of the end of the Main Street Lending
Facility?
Mr. Powell. Actually, it is a little more complicated than
that. The Congress gave the Secretary sole authority over the
CARES Act funding. We play no role in that, and that is in
distinction to the 13(3) facilities, which we designed together
because we both have to approve. And the Secretary reads the
law as he said, and really his voice is the authoritative one
on that, and we accept that. We accept that reading of the law.
So our point really was that other central banks--and any
central banker would tell you that it is premature to be
pulling back support for the economy, and the Secretary did
indicate in his letter--and it is true--that we can either
reestablish facilities or institute new facilities, and we can
even have Exchange Stabilization Fund backing for that,
provided the legal requirements are met.
I hope that is responsive to your question.
Senator Sinema. It is. Thank you.
I see that my time has expired, Mr. Chairman. I do have a
couple further questions, but I will submit those for the
record.
Chairman Crapo. Thank you, Senator Sinema. That concludes
the questions. Senator Brown has asked for a little bit of time
for closing remarks. Senator Brown.
Senator Brown. Thank you, Mr. Chair, and thanks again for
your service on this Committee.
Mr. Chairman, Republicans told us today the only thing we
set out to do is to stabilize the markets, and we have achieved
those goals so we can end support to the facilities. Look
around us. That is not the reality we are facing in our States.
People are dying in larger numbers than ever before from this
virus. Businesses are still closing. Sixty restaurant owners
collectively told me yesterday that it is worse than it was in
February, March, and April. People are increasingly worried
about the virus. People are still losing jobs. They are working
at unsafe jobs in an unsafe environment.
Secretary Mnuchin ended programs that are still helping
small and medium-sized businesses and helping State and local
governments. He just simply did not need to do that.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
And that concludes the questioning from today's hearing.
For Senators who wish to submit questions for the record, those
questions are due to the Committee by Tuesday, December 8.
To each of our witnesses, we ask that you respond to those
questions as promptly as you can. I want to thank you each for
joining the Committee today and for your service.
This hearing is adjourned.
[Whereupon, at 12:21 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 the witnesses to the Committee to provide
testimony as required under Title IV of the CARES Act: 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.
On November 19, Treasury Secretary Mnuchin requested for the
Federal Reserve to return unused funds that had been appropriated under
Title IV of the CARES Act for 13(3) facilities and direct loans.
I agree with Secretary Mnuchin on the success of the 13(3)
facilities and the termination language in the CARES Act.
The 13(3) facilities funded under the CARES Act were effective, and
fulfilled their purpose to stabilize markets, facilitate credit flow,
and provide liquidity.
The Wall Street Journal editorial board summed it up well: ``All of
these programs were created in an emergency at the onset of the
pandemic when the financial markets were in danger of melting down.''
Adding that, ``The programs worked. Even as the pandemic and
Government shutdowns have waxed and waned, financial markets have
healed. Lending spreads have fallen, and liquidity is ample in nearly
all markets.''
The most recent Federal Reserve Financial Stability Report pointed
to some of these successes.
It said, ``the announcements of the Primary Market Corporate Credit
Facility, Secondary Market Corporate Credit Facility, and Municipal
Liquidity Facility in late March and early April led to rapid
improvements in corporate and municipal bond markets well ahead of the
facilities' actual opening.''
The report also said, `` . . . Since the announcement of the
backstop facilities and funding market stabilization measures, more
than $1 trillion in new nonfinancial corporate bonds and more than $250
billion in municipal debt have been issued, purchased almost entirely
by the private sector.''
With respect to asset-backed securities, the report noted that,
``Similar to other backstop facilities, while outstanding balances in
the Term Asset-Backed Securities Loan Facility have remained modest,
spreads in the asset-backed securities market have narrowed
considerably, and private market issuance has resumed.''
With just one month until the December 31 termination date, only
$195 billion of the $454 billion needed to be allocated to the 13(3)
facilities, and those facilities have not been extensively used to
date.
Returning the unused $455 billion to Treasury now allows those
funds to be made available for other important purposes, such as
providing more targeted relief to sectors of the economy that need it
most, or to reduce the national debt.
The CARES Act funding supporting these facilities was always
intended to be temporary.
Additionally, as was mentioned in both Secretary Mnuchin and
Chairman Powell's letters, the Exchange Stabilization Fund still has
non-CARES Act funds that are available, to the extent permitted by law,
to capitalize any Federal Reserve lending facilities as needed.
In fact, the Fed has four facilities that were set up with non-
CARES Act funds, including the commercial paper facility and money
market liquidity facility.
Although COVID-19 continues to spread across the United States and
world, there is hope in the economic recovery that we have seen so far,
and in the reports of promising, highly effective vaccine trials.
However, we continue to look to steps we can take to help Americans
and businesses that need it most.
Republicans have tried for months to get another targeted,
bipartisan COVID relief package passed and signed into law to provide
support for those in need, but Democrats have rejected those efforts.
It is time to find agreement where we can on targeted, bipartisan
relief.
Turning for a moment to regulations, the CARES Act included other
meaningful pandemic-related programs to provide relief to Americans.
I have heard from banks and credit unions concerned about breaking
through regulatory thresholds that stand to impose a much greater
regulatory burden due to the temporary growth they have experienced
from customer deposits and participation in pandemic-related programs,
like the Paycheck Protection Program and Economic Impact Payments.
On November 20, the Fed, FDIC, and OCC took an important step to
mitigating banks' regulatory burden by giving community banks under $10
billion more flexibility to use their asset size on December 31, 2019,
for applying various regulations.
I appreciate the banking agencies taking this action, which will
foster a more certain regulatory environment for these banks and
incentivize their participation in future pandemic-related programs,
should they be needed.
Secretary Mnuchin, as you know, housing finance reform remains a
top priority of mine, and last year I released a housing reform outline
which builds upon many of the same principles from previous efforts.
While my preference was for Congress to pass a bipartisan deal, it
is long past time to make the hard decisions and address this last
unfinished business of the financial crisis.
Because of that I would encourage you and the Director of the FHFA
to continue to take important steps that move the system in the right
direction. The status quo is not acceptable.
I thank each of you for joining the Committee today to discuss the
CARES Act and other critically important issues.
Before I turn to Senator Brown for his opening, I want to take some
time to thank both Senators McSally and Jones for their contribution
and time to this Committee.
I have enjoyed working with them, spending time with them and
getting to know them, and they will be missed. I wish them both the
best.
Finally, I want to thank Senator Brown and his staff for the time
we have worked together on this Committee.
I have appreciated our time together on this Committee, and our
friendship, even if we, at times, may not have seen eye to eye. Thank
you.
______
PREPARED STATEMENT OF SENATOR SHERROD BROWN
Thank you, Chairman Crapo. Welcome Secretary Mnuchin and Chairman
Powell.
I'd first like to take a moment to thank Senator Jones and Senator
McSally for their service on the Committee, and Chair Crapo for his
leadership, decency, and patience. You can run, but you can't hide--I'm
also on the Finance Committee.
Also, I would like to thank your Staff Director Gregg Richard and
the rest of your staff for their continued hard work.
We've worked together to deliver results--working to strengthen our
review of foreign investment, to hold Russia and North Korea
accountable, to give American manufacturers the tools they need to
compete through a strong Ex-Im Bank, and to continue to protect our
communities from terrorism attacks.
I also appreciate Chair Crapo and his staff's work to hold many of
our hearings virtually during this pandemic--protecting all the people
who work in the capitol from this virus shouldn't be a partisan issue,
and on this Committee, it largely hasn't been. It's something I wish
were true about more areas of our Government.
Chair Powell and Secretary Mnuchin, in the 2 months since you were
last here, the situation around the country has only gotten worse--the
virus is spreading unchecked, job losses are up, and economic growth is
declining.
The number of new daily COVID-19 cases is up four-fold and daily
deaths have more than doubled. In many parts of the country, the case
numbers and hospitalizations are worse than in the spring.
Just last week, 748.000 people filed for unemployment insurance.
Millions more have been out of work since April.
In October, 3.4 million homeowners were past due on their mortgages
and many of them will run out of forbearance options by April. As many
as 40 million renters will spend the holidays worrying that they'll be
evicted on January 1st, if their Government doesn't do its job.
Behind all these numbers are real families who are doing their
best, trying to figure out how to get by. During Thanksgiving week,
there were hours-long lines at food banks across the country.
This is an extraordinary crisis that requires extraordinary
action--but we have a President who has given up on leading the
country.
And as far as I can tell, Secretary Mnuchin, you're leaving the
country worse off than you found it.
With that record, it's pretty obvious why 80 million Americans
decisively voted for new leadership.
And rather than use your final months in office to work for the
people you're supposed to serve, you appear to be trying to sabotage
our economy on your way out the door.
After the election, you canceled the Federal Reserve lending
programs, taking away critical tools to invest in the people and
communities and small businesses that make this country work.
There is no legitimate justification for it.
Either you're purposefully trying to stop President-elect Biden and
Janet Yellen from getting to work for the people we all serve, or
you're so delusional that you think because the stock market is back
up, everything is fine.
Either way, it's malpractice.
It was only the end of October when you finally reduced the minimum
loan size for the Main Street program to $100,000, so the program would
actually work for small businesses and communities. But now, after all
the waiting and adjusting, the Main Street program finally gets going
and you take away another tool to help American businesses and workers.
Even the policy head at the Chamber of Commerce said that shutting
down the emergency lending programs ``closes the door on important
liquidity options for businesses at a time when they need them most.''
It's always the same story--when the biggest banks and the largest
corporation needs help, their allies in Washington spring into action.
But when the rest of the country needs investment and support, you want
to pretend we can't afford it.
You cited Congressional intent as a flimsy justification for your
decision.
I can tell you right now--we didn't intend for struggling
businesses to have to wait over 3 months to have access to the lifeline
provided in the CARES Act, we didn't intend for the loan requirements
terms to be amended several times, and we certainly didn't intend for
the legislation passed in March to be the only efforts the United
States of America would take to fight a once-in-a-generation crisis.
Anyone who has watched the news at all in the last month would know
this is the time for action, not retreat.
We're watching hospitals fill up again. Our health care system is
getting overwhelmed. Gig workers and self-employed workers will lose
their unemployment insurance at the end of the year. Small businesses
and local governments are running out of money.
It doesn't have to be this bad.
We have the world's largest, greatest economy. We have the
resources to rise to meet this challenge.
But Secretary Mnuchin, you appear to believe this is the best we
can do.
In this election, Americans made it clear that they don't buy that.
They've had enough of aiming low, of being told ``we can't do it,
we can't solve problems, we can't govern, we can't afford it.''
We know we can do better--we've done it before.
Remember what Bill Spriggs told this Committee in September--we
didn't win WWII by worrying about whether or not we could afford it. We
were in a global crisis and we marshaled all of our vast resources and
talent to rise to meet it--and then we grew the economy from the middle
class out, and we paid down the debt with rising wages.
And if we've learned anything from this crisis, it should be that
we can do the same again.
Remember what we did in March--we came together, we took action,
and it made a real difference in people's lives. In the face of mass
layoffs, we put money in people's pockets and helped them pay their
bills and keep spending in the economy. We kept 13 million people out
of poverty.
And it helped everyone, including the stock market you love to brag
about.
There is no reason--other than a lack of political will--that we
can't do the same again.
A worker who is about to lose her job doesn't care about the date
on the calendar or who is sitting at the Secretary's desk. They care
about results.
Secretary Mnuchin, if you and President Trump won't deliver them,
the least you can do is get out of the way.
I know Chair Powell has been clear in previous hearings that we
need more stimulus to have any chance at a real, broad economic
recovery--one that reaches beyond Wall Street to Main Streets in
Cleveland and Boise and Scranton and across America, and that shows up
in people's paychecks, not just corporate balance sheets.
I hope today the American people will get reassurance that the
Federal Reserve will be part of that effort.
It's time for us to use every tool available to rise to meet the
challenges before us, and to restore people's faith in our Government.
______
PREPARED STATEMENT OF STEVEN T. MNUCHIN
Secretary, Department of the Treasury
December 1, 2020
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
I am pleased to join you today to discuss the Department of the
Treasury's unprecedented response to support the American people
throughout the coronavirus pandemic. We continue to work to implement
the historic CARES Act with speed, efficiency, and transparency, but
our job will not be complete until we get every American back to work.
Economic Recovery
When I last testified before you in September, I stated that
America is in the midst of the fastest economic recovery from any
crisis in U.S. history. I am proud to say that while there is more work
to be done, that statement is even more true today. In the third
quarter, GDP grew by 33.1 percent at an annual rate, beating all
expectations and nearly doubling the previous record set in 1950.
Americans are getting back to work. The October jobs report showed
that the economy has gained back 12.1 million jobs since April--more
than 50 percent of all jobs lost due to the pandemic. The private
service-providing sector, which includes those industries that were
most impacted by the initial economic shutdowns, has regained 58
percent of the jobs lost. The unemployment rate has decreased to 6.9
percent, a rate not expected by Blue Chip to be achieved until the
fourth quarter of 2021.
The historic, bipartisan CARES Act provided the economic relief
critical to supporting our robust recovery. Additional economic
shutdowns, however, continue to impair this remarkable progress and
cause great harm to American businesses and workers.
Additional Economic Relief
Based on recent economic data, I continue to believe that a
targeted fiscal package is the most appropriate Federal response. I
strongly encourage Congress to use the $455 billion in unused funds
from the CARES Act to pass an additional bill with bipartisan support.
The Administration is standing ready to support Congress in this effort
to help American workers and small businesses that continue to struggle
with the impact of COVID-19.
Transparency
Treasury has been working hard to implement the CARES Act in a
transparent and efficient manner. 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.
We continue to cooperate 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 have provided regular updates to Congress, with this marking my
eighth appearance before Congress for a CARES Act hearing. We have also
devoted significant resources to responding to inquiries from numerous
congressional committees and individual members of Congress on both
sides of the aisle. We appreciate your interest in these issues, and we
remain committed to working with you to accommodate Congress's
legislative requests and to further advance 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 relief 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
December 1, 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.
Our public health professionals continue to deliver our most
important response, and we remain grateful for their service.
The Federal Reserve, along with others across Government, is using
its policies to help alleviate the economic burden. Since the
pandemic's onset, we have taken forceful actions to provide relief and
stability, to ensure that the recovery will be as strong as possible,
and to limit lasting damage to the economy.
Economic activity has continued to recover from its depressed
second-quarter level. The reopening of the economy led to a rapid
rebound in activity, and real gross domestic product, or GDP, rose at
an annual rate of 33 percent in the third quarter. In recent months,
however, the pace of improvement has moderated.
Household spending on goods, especially durable goods, has been
strong and has moved above its prepandemic level. In contrast, spending
on services remains low largely because of ongoing weakness in sectors
that typically require people to gather closely, including travel and
hospitality.
The overall rebound in household spending is due, in part, to
Federal stimulus payments and expanded unemployment benefits, which
provided essential support to many families and individuals.
In the labor market, more than half of the 22 million jobs that
were lost in March and April have been regained, as many people were
able to return to work. As with overall economic activity, the pace of
improvement in the labor market has moderated. Although we welcome this
progress, we will not lose sight of the millions of Americans who
remain out of work. The economic downturn has not fallen equally on all
Americans, and those least able to shoulder the burden have been
hardest hit. In particular, the high level of joblessness has been
especially severe for lower-wage workers in the services sector, for
women, and for African Americans and Hispanics. The economic
dislocation has upended many lives and created great uncertainty about
the future.
As we have emphasized throughout the pandemic, the outlook for the
economy is extraordinarily uncertain and will depend, in large part, on
the success of efforts to keep the virus in check.
The rise in new COVID-19 cases, both here and abroad, is concerning
and could prove challenging for the next few months. A full economic
recovery is unlikely until people are confident that it is safe to
reengage in a broad range of activities.
Recent news on the vaccine front is very positive for the medium
term. For now, significant challenges and uncertainties remain,
including timing, production and distribution, and efficacy across
different groups. It remains difficult to assess the timing and scope
of the economic implications of these developments with any degree of
confidence.
The Federal Reserve's response has been guided by our mandate to
promote maximum employment and stable prices for the American people,
along with our responsibilities to promote the stability of the
financial system. We have been taking broad and forceful actions to
more directly support the flow of credit in the economy. Our actions,
taken together, have helped unlock almost $2 trillion of funding to
support businesses large and small, nonprofits, and State and local
governments since April. This, in turn, has helped keep organizations
from shuttering and has put employers in both a better position to keep
workers on and to hire them back as the economy continues to recover.
These programs serve as a backstop to key credit markets and have
helped restore the flow of credit from private lenders through normal
channels. We have deployed these lending powers to an unprecedented
extent. Our emergency lending powers require the approval of the
Treasury and are available only in very unusual circumstances, such as
those we find ourselves in today. Many of these programs have been
supported by funding from the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act), and I have included detailed information
about those facilities in my written testimony.
The CARES Act assigns sole authority over its funds to the Treasury
Secretary, subject to the statute's specified limits. The 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
of this year. Accordingly, the Federal Reserve will return the unused
portion of funds allocated to the lending programs that are backstopped
by the CARES Act in connection with their termination at the end of
this year. As the Secretary noted in his letter, non-CARES Act funds in
the Exchange Stabilization Fund are available to support emergency
lending facilities if they are needed.
Everything the Fed does is in service to our public mission. We are
committed to using our full range of tools to support the economy and
to help assure that the recovery from this difficult period will be as
robust as possible on behalf of communities, families, and businesses
across the country.
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 Coronavirus Aid, Relief, and
Economic Security Act (CARES Act), the Department of the Treasury has
committed to make a $35 billion equity investment in the SPV.
The MLF was announced on April 9, 2020, and closed its first
transaction on June 5. As of November 25, 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
approximately $275 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 that 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. These businesses and
nonprofits have good longer-term prospects but have encountered
temporary cash flow problems due to the pandemic and, as a result, are
not able to get credit on reasonable terms. 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 $100,000 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, 2020. The Federal Reserve
and the Department of the Treasury have modified the program several
times to reflect extensive consultations with stakeholders, most
recently by lowering the minimum loan threshold and adjusting fees to
make the program more accessible. As of November 25, nearly 600 lenders
representing more than half of U.S. banking assets have registered to
participate in the program, and the program has purchased just under $6
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),
discussed later, 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, by U.S.
companies that were investment grade before the onset of the pandemic
and remain near investment grade, and by 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, 2020, 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 November 25, 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
$13.6 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 $1.6 trillion 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 PMCCF 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. 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.
The dual announcement of the PMCCF and SMCCF was well received by
the market. Between March 23 and April 6, 2020, credit spreads for
investment-grade bonds declined substantially. As of November 25, there
have not been any PMCCF transactions, nor have any indications of
interest been received. 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, Department of the Treasury has committed to make a
$10 billion equity investment in the SPV.
As of November 25, the TALF has extended $3.8 billion in loans
since its launch on May 20, 2020. Loans have been collateralized by
SBA-guaranteed ABS, commercial mortgage-backed securities (CMBS), and
ABS secured by insurance premium finance loans or student loans.
The announcement and presence of the TALF has substantially helped
improve 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
under 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. As you know, the hospitality industry was exempt from the
SBA's affiliation rules, thus allowing and the predictable
result was that many large hotel corporations, real estate
investors and private equity firms applied for and received
multiple PPP loans for the various hotels they owned.
For example, affiliates of luxury hotel company Omni Hotels
& Resorts received separate PPP loans for 32 of its owned
hotels and the aggregate total of those loans was between
$52,000,000 and $120,000,000, according to SBA data. Several
Omni properties that received PPP loans were closed during the
applicable period, and at many of the others, only limited
staff has been employed since the end of March. At five of
those properties that received PPP loans and are represented by
the hospitality union UNITE HERE, virtually all of the
employees represented by UNITE HERE remain unemployed and most
lost their health insurance.
There are other similar examples of large real estate
interests that received multiple PPP loans for their hotel real
estate holdings, even though most or all of the employees at
their hotels had already been, and remain, laid off and without
health benefits to this day.
If it is determined that a company receiving multiple PPP
loans never seriously considered using a substantial amount of
that PPP funding for paychecks or benefits for employees, would
you consider that to be an abuse of the PPP program?
Is there any appropriate reason to forgive any portion of a
PPP loan to a borrower who did not attempt to use the proceeds
to fund paychecks or benefits?
A.1. The Small Business Administration (SBA) will review all
Paycheck Protection Program (PPP) loans of $2 million and
greater, and other PPP loans under $2 million as appropriate,
for fraud, abuse, and compliance with program requirements, as
well as for the accuracy of PPP borrowers' certifications. SBA
will also review a statistically valid sample of loans less
than $2 million. The Department of Justice is also actively
pursuing cases that involve potential fraud, and SBA and
Treasury will support those efforts as appropriate to continue
advancing program integrity.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM STEVEN T. MNUCHIN
Q.1. As the response to the COVID-19 pandemic continues, many
niche industries face a long, grim road to recovery. One of
these is the motorcoach industry. Some estimates predict that
up to 40 percent of these small businesses will cease to
function by year's end without targeted relief, at the cost of
tens of thousands of jobs and severe damage to our overall
transportation network.
Can Treasury consider targeted measures to ensure these
motorcoach carriers remain viable until there is opportunity
for recovery?
A.1. Congress recently passed on an overwhelmingly bipartisan
basis, and President Trump signed, the Coronavirus Response and
Relief Supplemental Appropriations Act, as part of the
Consolidated Appropriations Act of 2021, which includes an
additional $2 billion in assistance to the transportation
industry, including the motorcoach industry.
Q.2. If targeted relief cannot be provided by Treasury to
bridge the crisis, will the Administration support inclusion of
the CERTS Act in a COVID relief or stimulus package to be
negotiated between Congress and the Administration?
A.2. Congress recently passed on an overwhelmingly bipartisan
basis, and President Trump signed, the Coronavirus Response and
Relief Supplemental Appropriations Act, as part of the
Consolidated Appropriations Act of 2021, which includes an
additional $2 billion in assistance to the transportation
industry, including the motorcoach industry.
Q.3. In your Housing Finance Reform Plan from September 2019,
you state that to end conservatorship of Fannie and Freddie,
they should each be able to operate safely and soundly and
without posing an undue systemic risk. You also state several
minimum preconditions for FHFA as it considers exiting GSEs
from conservatorship.
Can you comment on the potential adverse market
consequences if the GSEs are rushed out of conservatorship
without the Treasury's recommended minimum preconditions being
met?
A.3. As Treasury made clear in its September 2019 Housing
Reform Plan, \1\ building sufficient capital is critical for
the GSEs' path out of conservatorship and to protect taxpayers.
Additional changes to the PSPAs may be appropriate to
facilitate this objective. No decision on changes to the PSPAs
has been made. Treasury continues to support housing finance
reform that preserves access to mortgage credit in all market
conditions as a part of robust and liquid residential finance
lending markets.
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\1\ https://home.treasury.gov/system/files/136/Treasury-Housing-
Finance-Reform-Plan.pdf
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------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM STEVEN T. MNUCHIN
Q.1. Please provide the legal analysis and reasoning to justify
returning funds used to backstop the Federal Reserve's
facilities to Treasury.
A.1. Based on his personal involvement negotiating and working
with Congress to draft the relevant provisions, the Secretary
believes Congress's intent, as outlined in Section 4029 of the
Coronavirus Aid, Relief, and Economic Security (CARES) Act, was
to have the authority to make new loans or loan guarantees, or
purchase new assets (either directly or indirectly), expire on
December 31, 2020. Consistent with this position, Congress has
rescinded unused CARES Act funds and appropriated funds to
provide additional support for American workers and businesses
in sectors that are experiencing serious difficulties.
Q.2. Does the White House believe there is a need for rental
assistance? If so, how much money does the Administration
believe is needed?
A.2. Congress recently passed on an overwhelmingly bipartisan
basis, and President Trump signed, the Coronavirus Response and
Relief Supplemental Appropriations Act, as part of the
Consolidated Appropriations Act of 2021, which includes $25
billion in rental assistance for struggling American
households.
Q.3. What policies is the Administration offering to leisure
and hospitality businesses and workers to support them until a
vaccine is distributed?
A.3. Treasury is committed to providing support for American
workers and businesses. That is why we worked with Congress on
a bipartisan basis to pass a Phase IV relief package that
includes $284.45 in additional PPP funding. The bipartisan
relief package expanded allowable and forgivable PPP expenses
to include supplier costs on existing contracts and purchase
orders, including the cost for perishable goods at any time,
costs relating to worker protective equipment and adaptive
costs, and technology operations expenditures. These expanded
forgivable expenses will directly benefit leisure and
hospitality businesses when they apply for a first or second
PPP loan. In addition, borrowers assigned to industry NAICS
code 72 (Accommodation and Food Services), which have been
directly affected by onerous State and local restrictions, can
now also receive a PPP second draw loan equal to 3.5x their
average monthly payroll costs.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM STEVEN T. MNUCHIN
Q.1. In November, the Federal Housing Finance Agency (FHFA)
released its final rule on a new regulatory capital framework
for Fannie Mae and Freddie Mac.
Given that the rulemaking is another step closer to ending
Fannie Mae and Freddie Mac's conservatorship, are Treasury and
the FHFA planning to release the Enterprises from
conservatorship before January 20, 2021?
What impact would an early release have on home owners?
What impact would an early release have on savers who have
mortgage-backed assets in their pension and retirement funds?
Has Treasury analyzed the impacts of an early release?
Can you provide any assurances that an early exit from
conservatorship is not being contemplated by the Treasury?
A.1. As Treasury made clear in its September 2019 Housing
Reform Plan, \1\ building sufficient capital is critical for
the GSEs' path out of conservatorship and to protect taxpayers.
Additional changes to the Senior Preferred Stock Purchase
Agreements (PSPAs) between Treasury and the GSEs may be
appropriate to facilitate this objective. No decision on
changes to the PSPAs has been made. Treasury continues to
support housing finance reform that preserves access to
mortgage credit in all market conditions as a part of robust
and liquid residential finance lending markets.
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\1\ https://home.treasury.gov/system/files/136/Treasury-Housing-
Finance-Reform-Plan.pdf
Q.2. In November, you requested the Federal Reserve return
unused funds provided by the CARES Act, indicating your intent
to end the temporary 13(3) emergency credit facilities,
including the Primary and Secondary Market Corporate Credit
Facilities, the Municipal Liquidity Facility, the Main Street
program, and the Term Asset-Backed Loan Facility.
What is your rationale behind ending these programs instead
of attempting to improve program uptake or reach?
A.2. Based on his personal involvement negotiating and working
with Congress to draft the relevant provisions, the Secretary
believes Congress's intent, as outlined in Section 4029 of the
CARES Act, was to have the authority to make new loans or loan
guarantees, or purchase new assets (either directly or
indirectly), expire on December 31, 2020. Consistent with this
position, Congress has rescinded unused CARES Act funds and
appropriated funds to provide additional support for American
workers and businesses in sectors that are experiencing serious
difficulties.
Q.3. Has the Treasury quantified the potential economic output
by businesses that might be realized if the emergency
facilities are extended and improved?
Has the Treasury quantified any potential economic output
in terms of increased employment?
What economic stimulus plans have you suggested for the
reallocation of unappropriated funds to assist small to mid-
sized business?
A.3. Based on his personal involvement negotiating and working
with Congress to draft the relevant provisions, the Secretary
believes Congress's intent, as outlined in Section 4029 of the
CARES Act, was to have the authority to make new loans or loan
guarantees, or purchase new assets (either directly or
indirectly), expire on December 31, 2020. Consistent with this
position, Congress rescinded unused CARES Act funds and
appropriated funds to provide additional support for American
workers and businesses in sectors that are experiencing serious
difficulties.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM JEROME H. POWELL
Q.1. Chairman Powell, as you know, the Federal Reserve Board's
rules regarding debit card interchange fees and routing
includes a provision exempting small issuers (those with less
than $10 billion in assets) from the interchange fee
limitations. Recently, the federal bank regulatory agencies
announced an interim final rule that, in part, provides
temporary relief related to this exemption for certain
community banking organizations that would otherwise have
crossed the threshold simply as a result of their growth in
their assets due to their participation in critical Government
programs aimed at responding to the COVID-19 pandemic.
Specifically, with regard to the requirements covered by the
interim final rule, certain community banking organizations
that would have crossed the $10 billion threshold under the
interchange rule in 2020 would have their assets measured as of
December 31, 2019. While I appreciate regulators' efforts to
provide much-needed relief to these financial institutions, I
remain concerned that this adjustment does not provide enough
flexibility for banks hovering at the $10 billion threshold.
Such banks were critical participants in relief programs such
as the PPP, and their continued participation in relief
programs will continue to be crucial to recovery. As such, it
would appear advisable for this temporary relief related to the
interchange rules to be extended through December 31, 2021, to
allow more time for banks to roll new assets off their balance
sheets and, as importantly, to continue to provide relief to
customers in lieu of racing to shrink their balance sheets back
below $10 billion before December 31, 2021.
In light of this, will you commit to working with me and my
staff to resolve these concerns and ensure that these community
banks can again actively participate in future COVID-19
response programs without being concerned about the significant
regulatory burdens that would otherwise result from crossing
this critical asset threshold?
A.1. The interim final rule that the Federal Reserve Board
(Board), the Federal Deposit Insurance Corporation, and the
Office of the Comptroller of the Currency announced on November
20, 2020, provides temporary relief for community banking
organizations whose assets have grown during COVID-19, in many
cases because of participation in Federal coronavirus response
programs, such as the Paycheck Protection Program (PPP). In
particular, the interim final rule permits banking
organizations that would have crossed Regulation II's $10
billion threshold as of December 31, 2020, and thus become
subject to the debit card interchange fee cap, to instead
measure their assets as of December 31, 2019, for purposes of
determining whether the firm is subject to the interchange fee
cap in 2021. You expressed concern that the period for this
relief is too short and should be extended through 2021 to
allow more time for banks who are participating in Federal
COVID-19 response programs to roll new assets off their balance
sheets.
As you may be aware, the interim final rule public comment
period closed on February 1, 2021. The Board will carefully
consider the points presented in your question in the Board's
review of comments to the interim final rule.
As the interim final rule stated, the last day for lenders
to make PPP loans as originally authorized under the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
was August 8, 2020, and a significant amount of the PPP loans
that were extended by that date will likely be forgiven by the
first calendar quarter of 2021. The Small Business
Administration recently released a simpler loan forgiveness
application for PPP loans of $50,000 or less, which will likely
result in PPP-related assets being removed from community
banking organizations' balance sheets at a faster rate.
The Board also recognizes that other Federal COVID-19
response programs in the future, including the recently
authorized new round of PPP lending, could affect banks'
balance sheet growth. The Board, in conjunction with the other
Federal bank regulatory agencies, will continue to consider and
evaluate this issue, particularly in light of COVID-19, to
assess whether further temporary relief would be appropriate.
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RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM JEROME H. POWELL
Q.1. Last month, a Treasury Department spokesperson said that
Treasury plans to put the $429 billion the Department is
withdrawing from the Federal Reserve's lending facilities into
the Treasury's General Fund. However, Section 4027 of the CARES
Act, the section that provides Treasury with the appropriation
of these funds, states, ``On January 1, 2026, any funds
described in paragraph (1) that are remaining shall be
transferred to the general fund of the Treasury.''
Chair Powell, will you commit to not return any funds to
the Treasury until the Secretary assures Congress and the
public that those funds will remain in the Exchange
Stabilization Fund as required by the CARES Act? If not, please
explain why not since the CARES Act specifically states, ``on
January 1, 2026,'' not ``by'' or ``no later than'' that date?
If you cannot make this commitment, can you please identify
the authority with which you believe Secretary Mnuchin has the
right to move these funds into the General Fund before the
January 1, 2026, date specified in the CARES Act?
A.1. The Consolidated Appropriations Act, 2021, amended the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
to require that, after December 31, 2020, (with the exception
of the Main Street Lending Program (Main Street), which was
granted an extension through January 8, 2021), the Federal
Reserve shall not make any new purchases under facilities that
are supported using funds allocated to the U.S. Department of
the Treasury (Treasury) under the CARES Act. In addition, the
Consolidated Appropriations Act, 2021, rescinded the
appropriation for the unobligated portion of these funds.
Accordingly, in early January, the Federal Reserve returned
approximately $62 billion of the funds contributed to the CARES
Act facilities by the Treasury and removed the commitment to
contribute additional funds.
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RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM JEROME H. POWELL
Q.1. If the incoming Treasury Secretary restores Congress'
appropriation to the Exchange Stabilization Fund, how would
implementation work operationally at the Fed?
A.1. Section 1005 of the Consolidated Appropriations Act, 2021,
amended the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act) to require that, after December 31, 2020, (with the
exception of the Main Street Lending Program (Main Street)
which was granted an extension through January 8, 2021), the
Federal Reserve shall not make any new purchases under
facilities that are supported using funds allocated to the U.S.
Department of the Treasury (Treasury) under the CARES Act.
Accordingly, the Federal Reserve ceased the extension of credit
under those emergency lending facilities backed with funds
appropriated under the CARES Act and, as required by law, the
Federal Reserve will not make new purchases under these
facilities.
Q.2. If the funds are returned, can the Federal Reserve
continue to make loans under its emergency lending facilities?
A.2. As noted above, in accordance with section 1005 of the
Consolidated Appropriations Act, 2021, the Federal Reserve
ceased the extension of credit under those emergency lending
facilities backed with funds appropriated under the CARES Act
on December 31, 2020, with the exception of Main Street, which
was granted an extension through January 8, 2021. In addition
to Main Street, facilities backed with funds appropriated
through the CARES Act include the Municipal Liquidity Facility
(MLF), the Term Asset-Backed Securities Loan Facility (TALF),
the Primary Market Corporate Credit Facility (PMCCF), and the
Secondary Market Corporate Credit Facility (SMCCF).
The remaining Federal Reserve emergency lending
facilities--the Commercial Paper Funding Facility (CPFF), Money
Market Mutual Fund Liquidity Facility (MMLF), Paycheck
Protection Program Liquidity Facility (PPPLF), and the Primary
Dealer Credit Facility (PDCF)--do not make use of funds
appropriated under section 4003(b) of the CARES Act and will
remain available through March 31, 2021, unless extended.
Q.3. Can the Federal Reserve operate lending programs without
Treasury funds as a backstop? Can the Federal Reserve use
repaid Main Street loans to make new loans to businesses?
A.3. Section 13(3) of the Federal Reserve Act authorizes the
Federal Reserve to establish an emergency lending facility
under unusual and exigent circumstances. By law, the loans that
the Federal Reserve extends must be satisfactorily secured and
sufficient to protect taxpayers from loss. In determining
whether an emergency lending facility meets these requirements,
the Federal Reserve considers the terms and conditions of the
facility and any other relevant factors, such as the existence
of an investment made by the Treasury. Certain emergency
lending facilities established by the Federal Reserve were
backed by funds invested by the Treasury, while other
facilities--such as the PDCF and the PPPLF--are not backed by
funds invested by the Treasury. However, the Department of
Treasury must approve of any emergency lending facility,
whether the Treasury provides funds or not.
With respect to Main Street, section 1005 of the
Consolidated Appropriations Act, 2021, amended the CARES Act to
require that, after January 8, 2021, the Federal Reserve not
make any new purchases.
Q.4. What policies, if any, has the Federal Reserve put in
place to create a more diverse, equitable, and inclusive
workplace?
A.4. The Federal Reserve Board (Board) is dedicated to
developing and sustaining a diverse and inclusive workforce.
The Diversity and Inclusion Strategic Plan 2016-19, published
in 2016, provides the foundation to guide the Board's efforts
in creating and sustaining a high-performing workforce that
embraces diversity and empowers all employees to achieve their
full potential. In further support of its commitment, the Board
has in place strategic objectives to attract, hire, develop,
promote, and retain a highly skilled and diverse workforce. We
continue to address strengthening a diverse, equitable, and
inclusive culture and workplace through our policies and
practices. We strive to learn from our experiences and adhere
to best practices. Through these and other intentional and
coordinated actions we ensure our continued commitment:
Frequent engagements and activities for the entire
Board staff and for smaller groups that encourage and
enable employees' sharing of experiences addressing
diversity, equity, and inclusion.
Promotion and support for Employee Resource Groups.
\1\ These groups hold educational events and
activities, and help identify and drive Talent
Acquisition, On-Boarding, Career Development, and
Culture change initiatives.
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\1\ See https://www.federalreserve.gov/careers-diversity.htm for a
list of Employee Resource Groups.
Provision of professional development programs,
including mentoring, rotation assignments, coaching,
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and leadership training.
Ongoing focus on succession and workforce planning
to address future workforce needs and strengthen the
diversity of the managerial pipeline and progression to
leadership positions.
Intensive recruiting to ensure diverse candidates
for job vacancies. This includes outreach to diverse
professional networks, usage of diversity job boards,
and attendance at job fairs at Hispanic-Serving
Institutions and Historically Black Colleges and
Universities.
Required training for hiring managers focused on
hiring without bias.
Additional Material Supplied for the Record
STATEMENT OF CUNA, SUBMITTED BY CHAIRMAN CRAPO
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
STATEMENT OF NAFCU, SUBMITTED BY CHAIRMAN CRAPO
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
STATEMENT OF NAR, SUBMITTED BY CHAIRMAN CRAPO
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
TREASURY RESPONSE, SUBMITTED BY SENATOR MENENDEZ
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
KTKR ARTICLE, SUBMITTED BY SENATOR WARNER
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]