[Senate Hearing 116-493]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 116-493

                    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

                               __________

                              MAY 19, 2020

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                                


                Available at: https: //www.govinfo.gov /

                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
45-759 PDF                 WASHINGTON : 2022                     
          
-----------------------------------------------------------------------------------   

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  JON TESTER, Montana
TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
MARTHA McSALLY, Arizona              DOUG JONES, Alabama
JERRY MORAN, Kansas                  TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                     Gregg Richard, Staff Director

                Laura Swanson, Democratic Staff Director

                        Catherine Fuchs, Counsel

                    Tanya Otsuka, Democratic Counsel

           Corey Frayer, Democratic Professional Staff Member

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                                  (ii)

                            C O N T E N T S

                              ----------                              

                         TUESDAY, MAY 19, 2020

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    50

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     3
        Prepared statement.......................................    51

                               WITNESSES

Steven T. Mnuchin, Secretary, Department of the Treasury.........     5
    Prepared statement...........................................    52
    Responses to written questions of:
        Senator Brown............................................    57
        Senator Toomey...........................................    63
        Senator Rounds...........................................    65
        Senator Perdue...........................................    65
        Senator Tillis...........................................    67
        Senator Kennedy..........................................    67
        Senator McSally..........................................    68
        Senator Moran............................................    68
        Senator Cramer...........................................    70
        Senator Reed.............................................    71
        Senator Menendez.........................................    72
        Senator Tester...........................................    77
        Senator Warren...........................................    78
        Senator Schatz...........................................    87
        Senator Van Hollen.......................................    88
        Senator Cortez Masto.....................................    89
        Senator Jones............................................   100
        Senator Smith............................................   105
        Senator Sinema...........................................   112
Jerome H. Powell, Chairman, Board of Governors of the Federal 
  Reserve System.................................................     7
    Prepared statement...........................................    53
    Responses to written questions of:
        Senator Brown............................................   115
        Senator Toomey...........................................   123
        Senator Rounds...........................................   125
        Senator Perdue...........................................   127
        Senator Tillis...........................................   129
        Senator Kennedy..........................................   130
        Senator McSally..........................................   130
        Senator Cramer...........................................   133
        Senator Reed.............................................   134
        Senator Menendez.........................................   135
        Senator Tester...........................................   140
        Senator Warren...........................................   142
        Senator Schatz...........................................   153
        Senator Van Hollen.......................................   155
        Senator Cortez Masto.....................................   159
        Senator Jones............................................   169

                                 (iii)
                                                                   Page

        Senator Smith............................................   171
        Senator Sinema...........................................   175

              Additional Material Supplied for the Record

Letter submitted by CUNA.........................................   183
Letter submitted by NAM..........................................   186

                                  (iv)

 
               THE QUARTERLY CARES ACT REPORT TO CONGRESS

                              ----------                              


                         TUESDAY, MAY 19, 2020

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met by videoconference at 9:59 a.m., Hon. 
Mike Crapo, Chairman of the Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order.
    We are all becoming more familiar with remote hearings, but 
let me offer a few videoconferencing reminders.
    Once you start speaking, there will be a slight delay 
before you are displayed on the screen.
    To minimize background noise, please click the ``mute'' 
button until it is your turn to speak or ask questions.
    If there is a technology issue, we will move on to the next 
Senator until it is resolved.
    Because we have a hard stop at 12:15, all Senators and 
witnesses need to be especially mindful of the 5-minute clock, 
and this time I will do my very best to tap the gavel at about 
30 seconds before the 5 minutes is up. And I ask everyone to 
please honor our timeframes today.
    You should all have one box on your screen labeled 
``clock'' that will show how much time is remaining.
    To simplify the speaking order, Senator Brown and I have 
again agreed to go by seniority.
    With that, today we welcome to this virtual hearing the 
Honorable Steven T. Mnuchin, Secretary of Department of 
Treasury; and the Honorable Jerome H. Powell, Chairman of the 
Board of Governors of the Federal Reserve System.
    We will receive testimony from the Secretary of the 
Treasury and the Chairman of the Federal Reserve, as required 
under Title IV of the CARES Act.
    Congress has appropriated nearly $3 trillion to protect, 
strengthen, and support Americans, to fight the pandemic, and 
also to stabilize the infrastructure of our economic system.
    A large portion of this funding is authorized under Title 
IV of the CARES Act, which provides significant resources for 
loans, loan guarantees, and other investments from Treasury and 
the Federal Reserve's 13(3) emergency lending facilities and 
programs in support of eligible businesses, States, 
municipalities, and tribes.
    Title IV of the CARES Act provided $454 billion as an 
infusion into the Exchange Stabilization Fund to support the 
Federal Reserve's emergency lending facilities that facilitate 
liquidity in the marketplace and support eligible businesses, 
States, local governments, and tribes.
    This unique lending authority, known as ``13(3) 
authority,'' is authorized under Section 13 of the Federal 
Reserve Act and plays a critical role in stabilizing markets.
    Both prior to and after the enactment of the CARES Act, the 
Federal Reserve announced the establishment of or its intent to 
establish several emergency lending facilities to support 
financial markets and businesses, including some that are 
supported and funded by the CARES Act.
    Last week, other members of this Committee and I had a 
robust discussion with Vice Chairman Quarles on these 
facilities and stressed the importance of getting facilities 
like the Main Street Lending Programs and the Municipal 
Liquidity Facility up and running quickly to provide a lifeline 
to struggling businesses, States, and local governments.
    Again, I stress the importance of setting these facilities 
up quickly and allowing broad access.
    There was also a discussion about whether it is acceptable 
for the Treasury to take any losses on investments put into the 
special purpose vehicles that the Fed will lend to for various 
programs.
    The 13(3) facilities are a critical component of a strong 
economic recovery, which reinforces the need to have them 
quickly operational, broadly available. and as flexible as 
possible.
    Title IV also contains robust oversight provisions, 
especially the one that brought us here today, Section 4026.
    It is critical that each Federal agency follow all 
reporting and oversight requirements in the CARES Act.
    Other steps are already being taken to ensure appropriate 
oversight.
    Last week, this Committee voted the Special Inspector 
General for Pandemic Recovery favorably out of Committee, and 
yesterday the Congressional Oversight Committee published its 
initial report on oversight of Title IV.
    The CARES Act is the biggest rescue package in the history 
of Congress, and we need to make sure the dollars and program 
quickly find their mark.
    During this hearing I look forward to hearing more on an 
update of the status of the Treasury loan programs, 13(3) 
emergency facilities, and the Paycheck Protection Program; 
steps the Fed and Treasury have taken, and will continue to 
take, to provide transparency into the loans and loan 
guarantees under the CARES Act; and how the unused funds from 
Title IV will be prioritized and leveraged to provide 
additional liquidity to the economy.
    While not part of Title IV of the CARES Act, SBA and 
Treasury have worked around the clock to ramp up the Paycheck 
Protection Program that has approved over 4.3 million loans to 
small businesses that amount to about $513 billion.
    According to the SBA, the overall loan size for the PPP is 
$118,000, and during the second round of PPP funding, the 
average loan size has been around $70,000.
    On April 28, Treasury and SBA announced that the SBA would 
review all PPP loans in excess of $2 million to make sure that 
the borrowers' self-certification for the loans was 
appropriate.
    Last week, SBA and Treasury provided a safe harbor for 
loans under $2 million.
    Finally, on May 8, 2020, Commerce Committee Chairman Wicker 
and I sent a letter to Secretary Mnuchin on the Payroll Support 
Program requesting a detailed report on the status of the 
program, and on May 12, Treasury announced the new transparency 
measures with regard to the PSP.
    I encourage you to continue your work with the applicants 
and update the information as additional funds are disbursed.
    I commend each of you and your staff for the hard work and 
extraordinary actions you have taken to stabilize the economy 
and provide support to Americans during this trying time.
    Thank you for joining us today to share your agencies' 
activities and plans in response to COVID-19.
    Senator Brown.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman.
    I would like to thank Chairman Crapo for following the best 
advice of health experts and holding a virtual hearing to 
prevent the spread of coronavirus.
    I welcome Secretary Mnuchin and Chairman Powell to the 
Senate Banking and Housing Committee. Thank you for joining us.
    I am still outraged by Leader McConnell's reckless decision 
to keep the Senate in session, putting Capitol Hill workers--
including Capitol police officers, custodial staff, floor 
staff, and cafeteria workers--putting all workers at risk.
    Leader McConnell has forced workers to go against public 
health authorities' advice for 3 weeks now; he still has no 
plan to get additional help to families and communities. The 
House passed a bill that incorporates many of our plans. The 
American people are rising to the challenge. Their leaders are 
failing them. Leader McConnell says he sees no urgency. Those 
are his words: ``no urgency.''
    Before we begin, I would like to pause for a moment to 
recognize all the workers who have lost their lives on the job 
during this pandemic.
    [Pause.]
    Senator Brown. The coronavirus has been the great revealer. 
It has brought out the best in our communities. We remember the 
spirit of solidarity that created our social safety net during 
the New Deal and inspired World War II victory gardens and 
powered the civil rights movement. Today that spirit of 
solidarity reveals itself in hand-sewn masks and fire escape 
applause for hospital workers and videoconference play dates, 
as millions of individual Americans pull together to do their 
part to flatten the curve.
    But this pandemic also lays bare how corporations that now 
claim their workers are ``essential'' have for too long treated 
them as more of a cost to be minimized.
    Since the bailouts of the financial crisis, many of us have 
been concerned about how our country rewards Wall Street and 
too often ignores the people who make our country work.
    Whenever we have asked why wages for these essential 
workers are stagnant, we are told we cannot afford it. 
Companies would have to raise prices if they paid people more. 
Never mind that CEOs were getting huge raises and Wall Street 
investors huge payouts. Never mind that low prices do not do 
you a lot of good if your wages stay low right along with them.
    Our economy has been paying the price for that--with a 
shrinking middle class, with rising inequality, with lower 
economic growth.
    Now it is pretty clear: When millions of American workers 
are laid off or have their hours cut or were making low wages 
to begin with and are now worried about their future, our 
economy grinds to a halt.
    In fact, the only thing keeping our society running in the 
middle of this crisis is American workers--those who stock our 
shelves and deliver our packages and fill our prescriptions and 
prepare food and care for loved ones.
    A grocery store worker in Ohio told me recently, ``I do not 
feel safe at work and they do not pay me much. I do not feel 
essential. I feel expendable.''
    We are asking people to show up to work and risk their 
health and risk their families' safety--perhaps finally 
realizing the words of Dr. King ringing true, that ``One day 
our society will come to respect the sanitation worker . . . 
for the person who picks up our garbage, in the final analysis, 
is as significant as the physician, for if he does not do his 
job, diseases are rampant. All labor has dignity.''
    Yes, all labor has dignity.
    You might think that at a time when we are demanding more 
from essential workers than ever before, that people who punch 
a clock or swipe a badge, people who take care of our families 
and our elderly--mostly women, often black and brown workers--
you might think they would all be getting a huge raise.
    Our economy is supposed to reward people whose talents are 
in high demand. That is what we are taught. That is what CEOs 
tell us, right?
    But that is not happening. Workers are getting left behind 
again.
    As essential workers go home to their families--think about 
this--after a long, stressful day, they are wondering how they 
are going to pay the rent, they are wondering how they are 
going to afford another week of groceries. And they wonder 
whether they are going to infect their families after going to 
work.
    Those are the ones that are working. How about the 35 
million Americans who have been laid off from their jobs 
because of this crisis?
    When we passed the CARES Act, we tried to address this. We 
tried to make sure that the trillions of dollars in spending 
would not just go to Wall Street like it usually does. We 
wanted to make sure the Fed and the Treasury got this money 
directly into workers' pockets.
    We did not want to see it go to gas and oil companies, 
whose activities frankly pose an existential threat to 
essential workers and our whole economy.
    Chairman Powell, I appreciate your recent comments about 
how Congress needs to do more to put money directly in workers' 
pockets. I agree, of course, with that.
    If Congress does not act now to put money in the hands of 
the people who actually power our economy--in workers, their 
families, and Main Street businesses in struggling 
communities--we risk making the economic crisis worse.
    Leader McConnell needs to let the Senate take up the House 
bill immediately. Debate it, negotiate it, argue with us, fight 
over it, but do something.
    Congress has an important responsibility also to make sure 
the $500 billion we have already approved for the Fed and 
Treasury is actually getting to workers. And from what we know 
so far, it does not appear that this Administration or the 
Federal Reserve are making workers their priority.
    Today I look forward to hearing from both of you, Mr. 
Secretary and Chairman Powell, not about what you are doing for 
big banks or big corporations--we already know that--and how 
you expect that money to trickle down, but how you are making 
sure the money and the authority Congress gave you actually 
help the people who make this country work.
    I want to hear how it is going to be different this time.
    I want you to explain what you will do to transform our 
economy so that it works for everyone--not just the wealthy and 
the powerful.
    I want to hear about your plans to make our economy work 
for essential workers now and in the future and how to safely 
get those who have lost their jobs back to work.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator Brown.
    We will now move to the testimony. Secretary Mnuchin and 
Chairman Powell, your full written statements will be made a 
part of the record. We will now go to your oral testimony, and 
we will start with you, Secretary Mnuchin.

 STATEMENT OF STEVEN T. MNUCHIN, SECRETARY, DEPARTMENT OF THE 
                            TREASURY

    Secretary Mnuchin. Thank you. Chairman Crapo, Ranking 
Member Brown, and members of the Committee, thank you for this 
opportunity to highlight how the Department of Treasury and the 
Federal Reserve are working together to provide liquidity to 
the financial system. Our programs support the flow of much-
needed credit to American workers, families, businesses, 
States, and municipalities.
    I am testifying today on camera at the request of the 
Committee. I look forward to testifying in person going forward 
in a safe way with proper social distancing according to 
medical guidelines.
    I want to begin by acknowledging the unprecedented 
challenges the American people are experiencing due to the 
COVID-19 pandemic. This disease is impacting families and 
communities across the Nation. Through no fault of their own, 
the American people are also enduring economic challenges. I am 
inspired by our Nation's medical professionals and first 
responders on the front lines taking care of our fellow 
citizens. Thanks to their efforts and unwavering commitment to 
their communities, I am confident that our Nation will emerge 
from the pandemic stronger than ever before.
    President Trump and the entire Administration are committed 
to providing necessary relief to help people get through this 
time. The Treasury Department is working hard to implement the 
CARES Act. We appreciate Congress working with us to enact this 
statute, which is the single largest economic relief effort in 
the history of our country. We also appreciate the feedback we 
have received from Members of Congress on both sides of the 
aisle as we implement a number of the critical programs 
established by the CARES Act.
    We have worked closely with the Small Business 
Administration on the Paycheck Protection Program to ensure 
processing of over 4 million loans for over $500 billion to 
keep tens of millions of hardworking Americans on the payroll. 
We are proud that nearly 400 Community Development Financial 
Institutions and Minority Depository Institutions and many 
small banks and nonbanks are participating in this program.
    We have issued more than 140 million Economic Impact 
Payments for over $240 billion to provide direct relief to 
millions of Americans. The typical family of four received 
approximately $3,400.
    We have distributed about $150 billion to State, local, and 
tribal governments through the Coronavirus Relief Fund for 
essential services. We have also approved nearly $25 billion in 
payroll support to the airline industry to protect this 
critical sector of our economy.
    Turning to the central focus of the hearing today, the 
CARES Act also provided authority for $454 billion in support 
for the Federal Reserve lending facilities to provide liquidity 
to the system.
    Since March 17th, I have approved the following facilities: 
the Commercial Paper Funding Facility, the Primary Dealer 
Credit Facility, the Money Market Mutual Fund Liquidity 
Facility, the Term Asset-Backed Securities Loan Facility, the 
Primary Market Corporate Credit Facility, the Secondary Market 
Corporate Credit Facility, the Main Street Business Lending 
Program, the Municipal Liquidity Facility, and the PPP Lending 
Facility.
    We have committed approximately $200 billion in credit 
support under the CARES Act. We have the remaining money to 
create or expand these programs as needed, and we continue to 
monitor a variety of economic sectors closely and are prepared 
to support these programs with the Federal Reserve as we need 
to move forward.
    We are sympathetic to hardworking Americans and businesses 
enduring tremendous challenges due to COVID-19. We have had to 
take unprecedented steps to shut down significant parts of the 
economy in the interest of public health. As a result, in the 
second quarter of this year, we are continuing to see large 
unemployment and other negative indicators. It is important to 
realize that the large numbers represent real people. This is 
why it is so important to begin bringing people back to work in 
a safe way.
    As we listen to medical experts, we are optimistic about 
the progress being made on vaccines, antiviral therapies, and 
testing. Working closely with the Governors, we are beginning 
to open the economy in a way that minimizes risks to workers 
and customers. We expect economic conditions to improve in the 
third and fourth quarter and into next year.
    I want to conclude by thanking the hardworking people at 
the Treasury, the Federal Reserve, and throughout the 
Administration. Under the leadership of President Trump, I am 
proud to have worked with all of you, on a bipartisan basis, to 
get relief into the hands of hardworking Americans and 
businesses as quickly as possible. While these are 
unprecedented and difficult times, these programs are making a 
major positive impact on people's lives. Together we will 
destroy the COVID-19 virus, and our country will emerge from 
this pandemic stronger than ever.
    Thank you for the opportunity to discuss these efforts 
today, and I look forward to your questions.
    Chairman Crapo. Thank you, Secretary Mnuchin.
    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 
testify today at the first quarterly hearing on the CARES Act. 
This is a worldwide public health crisis, and health care 
workers have been the first responders, showing courage and 
determination and earning our lasting gratitude. So have the 
legions of other essential workers who put themselves at risk 
every day on our behalf.
    As a Nation, we have temporarily withdrawn from many kinds 
of economic and social activities to help slow the spread of 
the virus. Some sectors of the economy have been effectively 
closed since mid-March. People have put their lives and 
livelihoods on hold, making enormous sacrifices to protect not 
just their own health and that of their loved ones, but also 
their neighbors and the broader community. While we are all 
affected, the burden has fallen most heavily on those least 
able to bear it.
    The sacrifices we are all making represent an investment in 
our individual and collective health. As policymakers, we 
should continue to do what we can to help cushion the blow.
    The scope and speed of this downturn are without modern 
precedent, significantly worse than any recession since World 
War II. We are seeing a severe decline in economic activity and 
employment, and already the job gains from the last decade have 
been reversed. Well more than 20 million people have lost their 
jobs, and recent Fed research shows what others have also 
found: that people earning less are the ones being hardest hit. 
This reversal of economic fortune has caused a level of pain 
that is hard to capture in words, as lives are upended amid 
great uncertainty about the future.
    The Federal Reserve is committed to using our full range of 
tools to support the economy in this challenging time. Our 
actions so far fall into four categories:
    First, outright purchases of Treasuries and agency 
mortgage-backed securities to restore functionality in these 
critical markets;
    Second, liquidity and funding measures, including discount 
window measures, expanded swap lines with foreign central 
banks, and several Treasury-backed facilities to support smooth 
money market function;
    Third, with additional Treasury-backing facilities to more 
directly support the flow of credit to households, businesses, 
and State and local governments;
    Fourth, temporary regulatory adjustments to encourage and 
allow banks to expand their balance sheets to support household 
and business customers.
    So far, we have created 11 facilities under Section 13(3) 
of the Federal Reserve Act to support liquidity, funding, and 
the flow of credit. All of these facilities have been 
undertaken with the approval of the Treasury Secretary, and 
many of them are supported by funding from the CARES Act. I 
discuss these facilities in greater length in my written 
statement which I provided to the Committee.
    At the Fed, we are committed to transparency, particularly 
in deploying our emergency powers. Public faith in our 
operations depends on that transparency.
    Thank you, and I will be happy to answer your questions.
    Chairman Crapo. Thank you, Chairman Powell. I will begin 
with you.
    Mr. Chairman, as you know, with regard to the Municipal 
Liquidity Facility, the thresholds for cities and counties are 
established, but they are established at such a level that many 
of the small cities and counties across the United States 
cannot apply for individual loans. You have indicated that it 
would be contemplated that the States be able to apply for 
loans for these smaller cities and counties, and there is a lot 
of concern out there about this. I would like to ask you to 
clarify that it is intended that these dollars do reach these 
small cities and counties, and tell us the process by which 
that can be accomplished.
    Mr. Powell. Thank you, Mr. Chairman. As you have seen, we 
have been gradually expanding the scope of potential borrowers 
in this world. There are 50,000 entities capable of borrowing, 
so we need to draw some lines to be able to handle this.
    But in the first instance, we have said that we will always 
be willing to lend to a State with the purpose of downstreaming 
to counties, cities, and other subdivisions of governmental 
authority within that State. So that is one thing.
    We also lowered the size of the city, and I would tell you 
we are continuing to look at ways to accommodate further 
borrowers, including perhaps in the case of States with 
relatively low populations where the only borrower with access 
may be the State Government itself. We are looking at ways to 
make sure that in those States we address the needs of 
potentially another borrower or two, and that is something we 
will be working on going forward.
    Chairman Crapo. Well, thank you very much.
    Secretary Mnuchin, to you, with regard to the 13(3) 
facilities, the CARES Act appropriates, if I recall correctly, 
$500 billion to be utilized through the Exchange Stabilization 
Fund to help facilitate the implementation of these Section 
13(3) facilities by the Federal Reserve. Most of that has not 
yet played out. Am I correct?
    Secretary Mnuchin. So of the $500 billion, approximately 
$50 billion was in direct lending programs from the Treasury 
and $450 billion was available for the 13(3) facilities. I have 
allocated about half of that, and let me be clear. I am 
prepared to allocate the rest of that. The only reason I have 
not allocated it fully is we are just starting to get these 
facilities up and running. We want to have a better idea as to 
which one of the facilities needs more capital as well as the 
potential for adding additional facilities. So I expect to 
allocate all the capital as needed, as was given to us.
    Chairman Crapo. And so that the listening public can be 
clear about this, the way these facilities work is once the 
money is allocated as you have just indicated to a particular 
facility and the Fed implements that facility, then that money 
can actually be leveraged into much greater amounts of 
liquidity for whatever market or situation that is addressed. 
Is that correct?
    Secretary Mnuchin. That is correct, depending upon the 
credit risk; it depends on the leverage. We have allocated the 
existing capital up to about $2.3 trillion in existing 
facilities. And, Mr. Chairman, let me just make a comment 
because I know there has been a lot of questions as to whether 
the Treasury is willing to take risk with that. I would say the 
answer is absolutely yes. The way these facilities work is in 
the facilities that do not have any credit risk, such as the 
PPP, I approve those without capital allocated. By definition 
any facility that the Fed believes puts them at risk, I do put 
up capital. So by definition, that capital is at risk. And we 
are fully prepared to take losses in certain scenarios on that 
capital.
    Chairman Crapo. Well, thank you. And I have just about 50 
seconds left, and I want to stay with the time. But there have 
been some allegations that just big companies are being 
benefited by these facilities. Could you quickly address that, 
Secretary Mnuchin?
    Secretary Mnuchin. Well, let me just comment. The 
announcement of the Corporate Bond Facility, without putting up 
$1 of taxpayer money, unlocked the entire primary and second 
market for corporate bonds. So companies such as Boeing that I 
had expected would need to borrow from us on a direct basis 
were able to borrow $25 billion in the primary markets. So I 
would say in the best-case scenario, the markets open up and we 
do not need to use these facilities.
    In the case of the Main Street Facility and the Municipal 
Facility, which we expect both to be up and running by the end 
of the month, we expect these to have a big impact on both 
those markets.
    Chairman Crapo. Thank you very much.
    Senator Brown.
    Senator Brown. The workers who have kept our country 
running during this public health emergency, the essential 
workers that we all pay lip service at least to, are often the 
lowest-paid workers in our economy. They are usually women. 
They are disproportionately black and brown workers. Too often 
they do not have a union. They are low-wage workers who do the 
laundry at hospitals, who prepare our food. They put their 
lives on the line to keep our country running. They are still 
worried about paying the bills, staying afloat, and staying 
healthy.
    Mr. Secretary, do you think that is fair?
    Secretary Mnuchin. Mister Senator, I apologize. Due to the 
technical issues, I did not hear the beginning of your 
question. I heard, ``Do you think that is fair?'' But I did not 
hear the question.
    Senator Brown. The people who we call the ``essential 
workers'' and we call out and thank, those essential workers 
are often the lowest-paid workers. They do the laundry; they 
are the custodians, the security people. They prepare our food. 
They put their lives on the line for very low wages. They are 
still worried about paying the bills. Is that fair?
    Secretary Mnuchin. Well, Mr. Senator, I just want to thank 
all the essential workers, whether it be the health care people 
or----
    Senator Brown. Well, the thanking is great, but these are 
people--is it fair that our economy pays the essential workers 
so little in such work conditions?
    Secretary Mnuchin. Mr. Senator, some of those people are 
paid less than others. Again, I----
    Senator Brown. Well, my question is: Is that fair?
    Secretary Mnuchin. Again, Mr. Senator, I do not know what 
specific workers you are referring to----
    Senator Brown. Well, I can lay them all out. I will try the 
Chairman of the Federal Reserve. Mr. Chairman, is it fair that 
those workers who are exposing themselves to this virus that 
are making low wages--we call them ``essential'' by all of our 
definitions. Is that fair?
    Mr. Powell. You know, those are workers who are basically 
in the service sector. That is what is unusual about this, that 
it is all about the service sector, and particularly those 
parts of the service sector where there are lots and lots of 
in-person contact, and those tend to be lower-paid workers, and 
they are definitely the most affected. And I would just say 
that, you know, all of our efforts are to do what we can to 
help those people and create conditions so that they will have 
the best possible chance to get back to work.
    Senator Brown. Well, some of the best things you both could 
do is to support pandemic pay for these workers and support 
another recovery act that included more dollars for these low-
paid workers, who we continue to celebrate as essential.
    Mr. Secretary, we passed the CARES Act to help millions of 
workers who make our country work. You have set up CARES Act 
programs to lend trillions of dollars to companies. Am I right 
that you are not requiring companies to use the money they 
borrow to keep their workers on the payroll?
    Secretary Mnuchin. Mr. Senator, I am following what was the 
exact letter and spirit of the law that we negotiated with you 
and others on a bipartisan basis. In some of these facilities, 
there are specific requirements, and I assure you that the 
Chair and I are absolutely enforcing those requirements as 
required in both the literal and spirit of the negotiations.
    Senator Brown. Well, that was nice-sounding words, but the 
Administration is willing to send people to work without regard 
for their safety, but the Administration is unwilling to make 
sure that these trillions of dollars in taxpayer money will 
help these workers directly.
    Secretary Mnuchin, let me go somewhere else. Public health 
experts have told us it is not safe to reopen the economy until 
we have worker protections in place that will control the 
spread of COVID, things like testing, contact tracing, 
protective equipment, efforts that the President has clearly 
failed to lead to help our country.
    Secretary Mnuchin, you said there is considerable risk of 
not reopening, that keeping some businesses closed could cause 
permanent economic damage. How many workers will die if we send 
people back to work without the protections they need, Mr. 
Secretary?
    Secretary Mnuchin. Senator, we do not intend to send 
anybody back to work without the protections, and I would say I 
was prepared to come there today. I thought it was safe to 
testify. As a matter of fact, I already was at the Senate this 
morning wearing a mask. And I assure you both myself and 
everybody on the task force, the Vice President and others, are 
following the best medical advice, and I could not be more 
proud of the medical advice that we are getting and the way the 
economy is opening up in a safe way.
    Senator Brown. So how many workers should give their lives 
to increase our GDP by half a percent? That you are pushing 
people back into the workplace, there has been no national 
program to provide worker safety. The President says reopen 
slaughterhouses, nothing about slowing the line down, nothing 
about getting protective equipment. How many workers should 
give their lives to increase the GDP or the Dow Jones by a 
thousand points?
    Secretary Mnuchin. No workers should give their lives to do 
that, Mr. Senator, and I think your characterization is unfair. 
We have provided enormous amounts of equipment. We have worked 
with the Governors. We have done a terrific job of getting----
    Senator Brown. Mr. Secretary, I am not going to let you 
make a political speech about what a great job--we hear that 
from the President in his news conferences--when, in fact, this 
country--the President has still not led an effort to scale up 
testing. He has played State after State, State against State. 
He has played hospital against hospital to get protective 
equipment. Everybody in the country, your comments 
notwithstanding, knows that.
    Chair Powell, you said last week the additional fiscal 
support could be costly but worth it if it helps avoid long-
term economic damage and leaves us with a stronger economy. So 
Congress needs to think about more than just the national debt 
right now. It is less costly to act today to help people than 
to pay for our failure to act in the future. Is that right, Mr. 
Chairman?
    Chairman Crapo. And if you would answer quickly, Mr. 
Chairman.
    Mr. Powell. Sure. Well, that is what I said. I said it 
could be. This is really a question for Congress to weigh. I 
wanted to call out the risk there, which was the risk of 
longer-term damage to the economy. And that is what I was 
doing, and I said we may need to do more and Congress may as 
well.
    Senator Brown. Thank you. And, Mr. Chairman, one brief 
comment. The Administration thinks we should put more workers 
at risk to juice the stock market. They have not come up with a 
basic plan for how to protect workers when they go back to 
work. When President Trump and Leader McConnell want to give 
away trillions and tax breaks to billionaires, the price tag 
did not matter a couple years ago when that happened. But we 
need to spend money now to keep workers safe in spite of the 
comments of some in the Administration and some in Senate 
leadership.
    Thank you, Mr. Chairman.
    Chairman Crapo. Well, thank you. I think that I would 
disagree with that characterization as well, but let us move on 
to Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. Thanks for joining 
us this way.
    I just want to follow up on this discussion about 
additional spending and remind everybody, while we authorized 
something on the scale of $3 trillion, to round things off, of 
direct spending and lending and then authorized the Fed to 
complement that with another roughly $3 trillion, that could 
be--$6 trillion, that is like 30 percent of our entire annual 
economic output. And, in fact, actually more than half of it 
has not yet been spent or lent, so I think you can make a 
pretty strong case that before we rush out and do another 
spending bill, we actually let some of this stuff go to work 
and understand the consequences of what we have already done.
    I appreciate the Chairman observing that his comment--while 
I think it was often mischaracterized as calling on Congress to 
pass a new bill, in fact, it was much more nuanced than that, 
and it acknowledged, among other things, the potential cost of 
new spending. The comment that you made at the Peterson 
Institute, Mr. Chairman, do you still stand by that comment?
    Mr. Powell. I do, I do. Would you like me to expand on 
that, Senator?
    Senator Toomey. You know, I think we have covered it, so I 
appreciate that. Let me move on to follow up on something the 
Secretary said about reopening.
    I think it is worth remembering why we shut down our 
economy in the first place. It was a very specific reason, and 
that was to prevent the virus from spreading so rapidly that so 
many people would get sick so quickly that we would overwhelm 
our hospitals. Well, it has been clear for weeks now that we 
are not going to overwhelm our hospitals, certainly not in 
Pennsylvania, and I know not in most of the country. And so I 
think it is essential that we begin the process of carefully, 
thoughtfully, and safely reopening the economy.
    Secretary Mnuchin, the longer that we continue a shutdown, 
when weeks turn into months, doesn't that necessarily increase 
the risk that some businesses will fail, some jobs will not be 
there to go back to if a lockdown and a shutdown continues 
indefinitely?
    Secretary Mnuchin. That is absolutely the case, Mr. 
Senator. There is the risk of permanent damage. And as I have 
said before, we are conscious of the health issues, and we want 
to do this in a balanced and safe way.
    Senator Toomey. Thank you. I guess for either of you on 
this one, I want to talk a little bit about the Main Street 
programs.
    First, give us your best estimate of when we can expect 
borrowers to actually be able to access funds from these 
programs?
    Mr. Powell. I will go ahead. So on Main Street and, 
frankly, on all of the other facilities, we expect all of them 
to be stood up and ready to go by the end of this month. I do 
not say that it will not be a day or two into June, but that is 
our expectation, and the funds should be flowing directly after 
that.
    Senator Toomey. And very briefly, would it be possible to 
characterize the remaining hurdles you have got to get over in 
order to start actually being operational?
    Mr. Powell. Sure. So all of them are complex and 
challenging, but Main Street is in a class by itself, really. 
It is not the bond market. These are small and medium-size 
companies. They live in a world of bank lending. That is a 
world of negotiated documents, and we are trying to enter that 
world and make loans to qualifying buyers. So we set up, you 
know, big operations at the Federal Reserve Bank of Boston and 
hired service providers, and we are doing all of that to be 
ready to face off against it. It is very diverse, small, 
medium, and large companies, very different industries, very 
different credit needs, some of them asset-based, some of them 
cash-flow-based. So it is a really complex undertaking, and 
people are working literally around the clock, and have been 
for weeks, to get it ready by the end of this month.
    Senator Toomey. Thank you for that.
    I also observe that one of the terms, one of the conditions 
of these facilities is that the banks who are acting as 
lenders--and, by the way, I am hoping that nonbanks can 
participate as well. Business development companies and others 
I think would be effective conduits for these funds. But the 
lender is going to be required to keep some of the risk on 
their own books, and I am wondering what kind of reaction you 
have gotten from lenders and potential borrowers. What kind of 
participation are you anticipating? Do you think there will be 
strong demand for these facilities given the way they have been 
structured?
    Mr. Powell. There are three facilities. We have had a lot 
of outreach--to borrowers, lenders, everybody--going back over 
the last couple of months. And the three facilities will 
probably attract different levels of demand. We are getting a 
good deal of interest and inquiry on them, and I think we will 
find out fairly quickly.
    You should know that we will continue to be prepared to 
adapt, as we have shown, if the uptake is not what we would 
hope, and we will be prepared to go after that and try to find 
ways to address the needs of this area of the economy.
    Senator Toomey. All right. Thank you very much.
    Thanks, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Reed.
    Senator Reed. Chairman Powell, thank you for your great 
leadership. I think you recognize that State and local 
governments are absolutely critical to our response to COVID 
but also to our economy. It has been estimated, for example, 
that there are 20 million jobs in State and local government, 
that State and local governments contribute 8.5 percent of 
national GDP, and we all know they are facing dire economic 
circumstances, projected 10 percent budget losses this year, 25 
percent next year.
    How likely will it be for us to have robust recovery if our 
States do not receive additional and flexible fiscal relief, 
not a loan from the Fed which increases their leverage, but 
fiscal grants to the States? How robust can our recovery be if 
this key sector is out of play?
    Mr. Powell. Senator, I do not want to get too into 
individual fiscal proposals. Those are really for you. I have 
tried to stay at a fairly high level on this. I will just echo, 
though, that I think something like 13 percent of the workforce 
is in State and local government. A lot of the critical 
services that people rely on day to day are, you know, provided 
at the State and local level. With balanced budget provisions 
in State Constitutions, that means that when revenue goes down 
sharply, it can mean job cuts and service cuts. So those are 
all important things to consider in going forward.
    Senator Reed. Well, thank you.
    Secretary Mnuchin, I just want to make a comment, because I 
made this comment to you repeatedly. That is, I do believe that 
within the Coronavirus Relief Fund that we passed, you do have 
the flexibility to provide support for the States when it comes 
to lost revenue. This lost revenue was not anticipated in their 
budgets. Far from that. And, second, it is directly related to 
the COVID virus. If you go to most States, it is directly 
related.
    So I would urge you to relook, as you have done with PPP, 
and you have tailored that several times, look back again and 
reconsider the ability to use flexibility in this Coronavirus 
Relief Fund. So that is just a comment, Mr. Secretary. Let me 
return back to Chairman Powell.
    Chairman Powell, we know that unemployment is going to be 
something that will be with us for a while. It is about 15 
percent now. I have seen estimates as high as 20 or 25 percent 
next year. And yet our unemployment insurance programs are 
keyed to a date. They will end at a certain time.
    Do you think it is important for us to have the confidence 
and give confidence to people that they can still receive funds 
like this, even if the date is surpassed, the economy is still 
in disarray, States are still looking at 10 percent 
unemployment rates? Don't they need that certainty so we would 
have to build in some type of test--not a date, but a test for 
unemployment compensation?
    Mr. Powell. Senator, again, that is a question about a 
specific fiscal policy, and that really falls to you. You know, 
we try not to get into too many specifics. I will say, though, 
that the risk that I called out last week and that I have been 
concerned about, and others have, is that long periods of 
unemployment can really affect people's ability to go back to 
work because they lose their networks, they lose their skills, 
they lost contact with the job market. So I think anything that 
keeps people intact hopefully in their job, but in the 
meantime, keep them out of insolvency and things like that, 
should the expansion start later or take longer to get going, 
those are appropriate things for you to look into.
    Senator Reed. Just a final point, Chairman Powell. I think 
we are missing the boat once again. This is sort of like deja 
vu. I was here in 2008, 2009, and 2010, and we leaped in to 
help the mortgage market with both feet, but we did not help 
people avoid foreclosure. It seems to me that that is what we 
will do again unless we have a fiscal program that provides 
resources to keep people in their homes. When they cannot pay 
their rent, when they miss their mortgage payments, that will 
put pressure on the mortgage communities, and you and the Fed 
and the Treasury will rush to help. Wall Street will get the 
help. Main Street will be left behind. There will be, as there 
was in 2008, 2009, and 2010, thousands and thousands of people 
without homes. And any economic recovery is going to be slowed 
by people in those conditions.
    So I would just ask whether you consider this fiscal 
response to the core problem--people cannot pay their rent, 
they cannot pay their mortgage--is probably the best response 
rather than filling in later.
    Mr. Powell. I think you are right. Waves of foreclosures 
can undermine household finances, obviously, and as a result, 
bad household finances are troubled. But, of course, in this 
case there has been some significant forbearance on that, and I 
think, you know, that is, again, something to continue to 
consider.
    Senator Reed. Thank you very much, Mr. Chairman. I thank 
Chairman Powell and Chairman Crapo. Thank you.
    Chairman Crapo. Thank you.
    Senator Scott.
    Senator Scott. Thank you, Mr. Chairman. To the panel, thank 
you all for being with us this morning.
    This is a really important time in our country. There is no 
doubt that the global pandemic has shocked the world and, 
frankly, shuttered a lot of businesses. And because of the 
Paycheck Protection Program, I think the two tranches of the 
Paycheck Protection Program have saved, from my understanding, 
somewhere near 50 million jobs--the first tranche, about 30 
million jobs; the second tranche, about 20 million jobs. And we 
still have about $100 billion left that we can deploy into our 
communities.
    With that said, thinking about the backdrop of $100 billion 
left in the Triple P, Mr. Secretary, I think you know that I 
feel really passionate about helping the underserved 
communities, whether that is Horry County in South Carolina or 
West Virginia and some of the rural parts of West Virginia. 
Very often, small and minority businesses are the lifeblood in 
those small rural communities, and, frankly, we have the 
Minority Business Development Agency that has done a really 
good job of helping to deploy some of the resources from the 
Triple P into those underserved communities.
    My question is: How can we use the MBDA or some other 
mechanism to get more of those resources in our rural 
communities or, frankly, in our inner-city communities where 
perhaps the Paycheck Protection Program has been more 
intimidating for smaller businesses, like barbershops and 
beauty salons, some of the rural gas stations that may not have 
the banking relationship that was necessary at the beginning of 
the program, or their 1099, which means that basically they had 
to wait a week before they were able to get in the cycle? How 
can we help those organizations and agencies like the MBDA 
actually provide the marketing so that more people understand 
the benefits and understand the program of the Triple P? Mr. 
Secretary?
    Secretary Mnuchin. Well, Senator Scott, first of all, thank 
you, because we appreciate the work you have done with us on 
this issue already, and we will continue to work with you and 
others.
    One of the things we are very pleased about the additional 
money is that the average loan size has come down considerably. 
I think we all had certain concerns about in the first tranche 
how larger companies were prioritized. I believe that has now 
been corrected.
    I also could not be more pleased how we have been able to 
get sole proprietors and others into the program. And as I have 
said, fortunately right now we still have a significant amount 
of money left, but we are very much willing to consider the 
bipartisan request of reserving money for CDFIs at the end to 
make sure that the underserved communities are properly served 
in this program. Thank you.
    Senator Scott. Thank you. Mr. Secretary, once again let me 
just say to you, since I can see you on the screen, you have 
done a fabulous job under intense pressure, and without any 
questions, America recognizes the valuable service that you 
have provided to our country, and I am personally thankful for 
your accessibility. Under pressure, you have still been very 
receptive and responsive, and that is to say a lot under the 
current conditions. So thank you very much on that.
    Chair Powell, I heard you talk about forbearance very 
quickly there, and this is an issue that continues to grow in 
importance and really in urgency, whether it is a small 
business, whether it is the residential market or the 
commercial market.
    The one concern I have that continues to grow would be 
commercial mortgage-backed securities. There are a number of 
shopping centers in South Carolina and, frankly, throughout the 
country where, having spoken to some of the folks who own those 
shopping centers, like 20 to 22 percent of the folks are able 
to pay their rent, which means that we are looking at a domino 
effect in the mortgage market, whether it is commercial and, 
frankly, residential, the same concern. I am not sure what the 
answers are. Certainly it is either forbearance or, frankly, 
bankruptcy for many firms.
    What should we expect, what should we anticipate from the 
Fed and from the Treasury as it relates to creating more 
liquidity in that market? And I do not know that there is a 
silver bullet. I do not see a panacea. But what would you both 
suggest that I should tell my constituents on this really 
important issue? Thank you.
    Mr. Powell. It is an important market. As you know, we have 
supported the CMBS market with our open market purchases, and 
that did help that market to keep functioning. In addition, 
legacy CMBS are eligible for our Term Asset Loan Facility, 
which is an asset-backed security. It is an important market. 
We continue to monitor it. You know, the 13(3) facility is a 
lending facility, and that is the tool we have. Not every 
problem can be successfully addressed with such a facility, but 
where it can be, we are willing to take a hard look.
    Senator Scott. OK. Thank you.
    Mr. Secretary, anything to add to that, sir?
    Chairman Crapo. Quickly, please.
    Secretary Mnuchin. Again, I would just add both working 
with the FHFA as well as Ginnie Mae on the agency side and then 
working with the Fed on the securitization side, unfortunately, 
securitizations have certain limitations, but we continue to do 
this. Thank you.
    Senator Scott. Thank you, Mr. Chairman. I may be over my 
time. I cannot see the clock, so I assume that I have 5 more 
minutes left.
    [Laughter.]
    Chairman Crapo. I have been trying to tap. I am not sure if 
everybody is hearing the taps, but I will do something loud.
    Senator Scott. Thank you, sir.
    Chairman Crapo. All right. Thank you.
    Senator Menendez.
    Senator Menendez. State and local governments are facing 
unprecedented budget challenges. We are looking at enormous 
wave of budget shortfalls about to crest, which will lead to a 
devil's cocktail of devastating layoffs, dangerous cuts to 
public safety and essential services, and massive local tax 
increases. Any one of those ingredients alone threatens to make 
this economic crisis even worse, and the combination of all 
three is almost unthinkable.
    The Bureau of Labor Statistics just reported that State and 
local governments laid off nearly 1 million workers in the 
month of April. That is almost 1 million firefighters, police 
officers, teachers, emergency health personnel that should be 
on the front lines of the public health crisis but are 
sidelined instead.
    So, Chairman Powell, let me just start by asking, do you 
agree that our economy will get worse if State and local 
governments are forced to lay off even more firefighters, 
police officers, teachers, and emergency health personnel?
    Mr. Powell. Well, let me say what we are doing, Senator. 
You know, we have a Municipal Liquidity Facility that is there 
to address the short-term liquidity needs that these entities 
have because of their loss of revenue due to the effects of the 
pandemic, and that is really the tool that we have to----
    Senator Menendez. Well, I appreciate that, but that is not 
my question. My question is: If States, counties, 
municipalities continue on the path to lay off--you know, we 
have a million laid off--even more, just from an economic 
situation, doesn't that make the economic recovery even worse?
    Mr. Powell. Essentially yes, Senator, and we have the 
evidence of the global financial crisis and the years afterward 
where State and local government layoffs and lack of hiring did 
weigh on economic growth during that period.
    Senator Menendez. Well, one of the tools that we have to 
alleviate this problem is by using the money Congress provided 
in the CARES Act to bring down borrowing costs for our State 
and local governments so they can set the stage for a strong 
recovery. I was glad to see the Federal Reserve support local 
governments through the Municipal Lending Facility, but, 
frankly, I do not think it is enough.
    In a letter that I and Senators Tillis, Brown, and 
Murkowski sent to you and Secretary Mnuchin last week, we 
called on the Fed to establish another facility, one that would 
purchase medium- and long-term municipal bonds, both directly 
from issuers as well as on the secondary market and thereby 
ensure our State and local governments can continue to finance 
key public services and invest in infrastructure and other 
areas to jump-start our economy and get Americans back to work.
    Will you commit to work on that proposal that the Senators 
sent to you?
    Mr. Powell. Yes, we will take a look at that, Senator. I 
will say, though, that generally with 13(3), what we are trying 
to do is address liquidity needs, and those are really longer-
term funding needs. But notwithstanding that, we are taking a 
look.
    Senator Menendez. I appreciate that. In a speech last week, 
Mr. Chairman, you said, ``Additional fiscal support could be 
costly, but worth it if it helps avoid long-term economic 
damage and leaves us with a stronger recovery. The tradeoff is, 
of course, for our elected representatives.'' You know, I 
agree. The hit to our States, cities, and counties is 
tremendous, and it is not just specific to my State of New 
Jersey. Projections released by Moody's reveals that every 
State in the Nation is already or will soon face historic 
budget shortfalls. Just to pick a few examples, they found that 
Ohio and Arizona are each facing a fiscal shock totaling about 
20 percent of their entire State budget. And for some States, 
the numbers are even worse, like West Virginia, which is facing 
a 40-percent fiscal shock. Like you said, the Fed cannot be 
expected to solve all of our problems.
    Yesterday I introduced the SMART Act, which is a bipartisan 
bill--three Republicans, three Democrats--to provide $500 
billion in direct support to our State and local governments. 
It is the first bipartisan bill of its kind in the Senate, and 
I think when we have colleagues from Mississippi, Louisiana, 
and Maine on the Republican side, it is not a partisan issue.
    Would that be the type of solution that can get us back in 
terms of the States into fiscal recovery?
    Mr. Powell. Senator, we try to stick to our knitting over 
here, and you know that we have done what we can with the 
Municipal Liquidity Facility. But those questions are really 
for elected representatives.
    Senator Menendez. Well, let me just close on this. A lot of 
minority-owned businesses are not getting access to the 
Paycheck Protection Program as we in Congress intended. I know 
the Secretary has been receptive, I hope you will be receptive 
as well to allowing community development financial 
institutions and minority development institutions get greater 
access to these programs and to the lending facilities set up 
in the CARES Act so these funds can reach businesses in low-
income and underserved areas of our country. It is just still 
not happening, and I urge--the Secretary, I believe, has been 
rather receptive about this. I would urge you, Mr. Chairman, to 
be receptive as well.
    Chairman Crapo. Thank you.
    We will next move to Senator Sasse, who will be with us by 
telephone. And, Senator Sasse, I will tap at about 30 seconds 
left of your 5 minutes. You can proceed.
    Senator Sasse. Thank you, Chairman. And, gentlemen, thank 
you both for being here. Sorry, but I am in the hallway outside 
of a Judiciary Committee hearing, so I do not have the Zoom 
camera here, but I am grateful for both of your time and 
responsiveness on this.
    I want to start by asking about some of the recent cyber 
attacks. We have obviously seen an increase in schemes directed 
at financial institutions that have been active in trying to 
help with corona response, and I am just curious as to if you 
have any update for us on the cybersecurity attacks we see in 
this space.
    Secretary Mnuchin. Well, I would just comment on that that 
we have a Department within Treasury that is actively working 
on all these issues and coordinates and makes sure that our 
infrastructure--I will just give a pitch for our Secret Service 
bill, moving the Secret Service back to the Treasury because 
the issues I think they can help with is on these cyber-related 
issues. But I can assure you we have all the resources working 
on this jointly and take it very seriously.
    Senator Sasse. [Inaudible] ----institutions that do not 
have the scale to have huge cyber defenses on their own, and 
when we see foreign actors doing stuff like this, it is 
obviously critical that we view this as a whole-of-society 
problem, not just these institutions alone. So thank you for 
your pledge to keep looking at that.
    Chairman Powell, the Fed has done a series of announcements 
over the last 2 months about the 13(3) funding facilities. And 
in the announcement of April 9th, the Fed announced that the 
Term Asset-backed Securities Loan Facility would be expanded to 
include commercial mortgage-backed securities as well as static 
collateralized loan obligations. The Wall Street Journal 
described that expansion as ``the Fed will in effect be buying 
the worst shopping malls in the country and some of the most 
indebted companies.''
    Could you give us your perspective on the Wall Street 
Journal's characterization of this expansion? And are they 
right about the risk levels with some of the commercial 
properties? Obviously, as America goes through this experience 
of corona time, lots and lots of people are not just doing 
telecommuting and distancing for the present, but we see in 
Silicon Valley lots of companies planning to migrate their 
long-term strategy, and I would assume that is a bellwether of 
what we are going to see for commercial property across 
America. The taxpayers should not be on the hook for flooding 
into that space. Can you help us understand how you would 
respond to the Wall Street Journal's argument?
    Mr. Powell. Sure. First, in TALF we are supporting asset-
backed securities markets broadly, which that is consumers, 
that is car loans, that is credit card loans, things like that, 
in addition to the CMBS you mentioned. Now, we are only buying 
the Triple A-rated piece, and we are only buying it with a 
good-sized hair cut. So the credit risk is actually very, very 
low on this to us, and the same thing is true of the CLOs.
    Senator Sasse. That is helpful, the Triple A point. Thanks, 
Chairman.
    Secretary Mnuchin, I want to go back to some China IP 
issues that you and I have discussed before. Obviously, the 
Chinese Government has been stealing American intellectual 
property for decades to fuel its economic rise, and while we 
have indicted companies and individuals for cyber espionage and 
for some of the theft of this intellectual property, we rarely 
see any sanctions for these crimes. For instance, we have 
indicted Huawei and its subsidiaries and its CFO for a long 
list of crimes, from the theft of trade secrets to sanctions of 
Asians' money laundering, but we have not placed any sanctions 
on Huawei itself.
    How do you and the Treasury Department assess the costs and 
benefits of utilizing sanctions against some of the Chinese 
Communist Party's economic champions like Huawei that obviously 
are not really private sector companies? They built the 
business die, sort of the ostensible private sector side of the 
organization by stealing IP, but the back end of Huawei is 
obviously hooked in not just to the Communist Party but to 
military intelligence. So why do we continue to treat these 
``companies'' as if they are really private sector? Where do 
you come down on the cost-benefit analysis on utilizing 
sanctions?
    Secretary Mnuchin. Well, I think as a matter of policy, you 
know--and I have said this before--I do not comment on future 
sanctions actions, nor do I comment on specific sanctions on 
specific companies, although I will tell you that the issues 
related to Huawei we do discuss on an interagency basis and do 
coordinate. I would also just comment that I have worked very 
closely with Ambassador Lighthizer obviously on the China 
agreements, and forced technology transfer is a major issue 
that we have been combating.
    Senator Sasse. Fair, Secretary, but we have heard U.S. 
Government officials of both Administrations for two decades 
talk about, you know, agreements that are eventually going to 
have teeth, and they almost never do. Ambassador Lighthizer has 
been a bit of a pit bull on this piece of it, but discussing it 
in the interagency process is not really the same as us pushing 
to help Huawei and their state-based backers understand that IP 
theft has real consequences, not just press releases. So I am 
glad that it is a topic for interagency discussion, but I would 
just say--and I know that the Chairman's gavel there implies 
that I am at time, but I would just say in the intelligence 
community, oversight community in the legislature, this is an 
increasingly bipartisan issue that Republicans and Democrats 
believe that it is important for us to be holding these faux 
private sector companies in China to more account, and the 
Chinese Government needs to know that we mean it, not just say 
eventually, you know, somebody is going to come up the stairs 
if you guys keep stealing IP and they continue to do it. So for 
what it is worth, I think the Article I perspective here on an 
increasingly bipartisan basis is serious.
    Thanks, Chairman.
    Chairman Crapo. Thank you.
    Senator Tester.
    Senator Tester. Thank you, Mr. Chairman and Ranking Member 
Brown. I want to thank both Secretary Mnuchin and Chairman 
Powell for being on the call today. We have all seen what has 
transpired over the last couple months as far as Inspectors 
General go.
    My question is quite simple: Can I get both of your 
commitments, individually of course, that if an IG submits a 
request to you, you would provide any information to them and 
do so in a timely manner?
    Secretary Mnuchin. Yes.
    Mr. Powell. Yes.
    Senator Tester. Good. Secretary Mnuchin, can you tell me 
from your perspective how active has the Congressional 
Oversight Commission been?
    Secretary Mnuchin. I have seen the recent report. I cannot 
comment on what meetings they have had or what they have done 
on that.
    Senator Tester. OK. And you guys, I would assume, comply 
with any requests that they may make, correct?
    Secretary Mnuchin. I see no reason why we would not.
    Senator Tester. OK. Well, I value that and I appreciate 
that from both of you. I think the President has a bit of a 
different opinion, and I say that by what he has said, not by 
what I think about the values of Inspectors General.
    Secretary Mnuchin, do you think it is right to be able to 
remove public servants that their job is independence and 
holding the Government accountable?
    Secretary Mnuchin. I think that--if you are referring to 
the removal of the IG, again, which I only know from what I 
have heard the President say, but, yes, that is within his 
authority.
    Senator Tester. Even if they are doing their job?
    Secretary Mnuchin. Again, that is an appointed position. He 
has the right to withdraw, just as he has nominated a new 
Special Inspector General to work with the CARES Act, which we 
look forward to the Senate confirming so we can work with that 
person.
    Senator Tester. I have a totally different perspective on 
that, and I will tell you why. I know he has the authority to 
remove anybody, including yourself, and I would say that if you 
are doing your job, in the case the Inspector General has been 
doing it on an independent basis, I think it is just--I think 
it is a clear misunderstanding of the three branches of 
Government.
    So I talked to you a little bit about reporting to the IGs, 
and I will tell you, I learned something today I did not know 
before, that nearly half--this is by Senator Toomey--of the 
dollars that we have allocated, the $3 trillion, has neither 
been spent nor lent. So can you guys--we need more transparency 
in these programs, and I think you would agree with that. When 
can we see full information about who is getting the dollars?
    Secretary Mnuchin. Well, let me just comment. When we 
negotiated this bipartisan deal, we agreed to unprecedented 
transparency. So we agreed to release things that are not 
required by 13(3), so I do not know why you have not seen that. 
Everything is posted on our website or the Fed's website. We 
take great pride in the transparency that we have provided and 
we have agreed to as part of the CARES Act.
    Senator Tester. Secretary, you are saying that the 
information about who is getting the dollars and who is getting 
the money is already posted on your website?
    Secretary Mnuchin. Again, what I have said is every single 
commitment we have made is listed on the website, every single 
term sheet, and, yes, it----
    Senator Tester. So every dollar that has gone out is listed 
on your website is what you said. That is what I heard.
    Secretary Mnuchin. Again, within the CARES Act facilities 
with the Fed, when we do individual transactions through them, 
they are listed.
    Senator Tester. Chairman Powell--I look forward to seeing 
that list, by the way, Secretary Mnuchin, and I am going to go 
online and I am going to search it, because I am going to tell 
you that as much transparency as you have said is with this 
program, as the Senator from Montana, as a member of the 
Banking Committee, I am not seeing any of it, quite frankly. I 
am seeing general numbers. I am not seeing any of it. We will 
deal with that at a later date.
    Chairman Powell, I have a question for you. There has been 
$3 trillion that has been put out. Can you give me an idea how 
many dollars, because of the leveraging that the Fed used, has 
actually been infused in the economy?
    Mr. Powell. Well, Senator, our facilities, the big 
facilities to which the equity has been committed, are really 
just coming online, so it is all ahead of us. You know, we have 
taken some time to set these facilities up, so the amount that 
has gone out so far is, in the context of the U.S. economy, 
fairly modest. We have committed, though, to disclose all of 
the borrowers and the amounts in a timely way.
    Senator Tester. I appreciate that. There is $200 billion 
that I believe Secretary Mnuchin said would be leveraged to 
$2.3 trillion. Do you agree with that?
    Mr. Powell. Yes, potentially. We cannot be precise about 
these numbers, but we can leverage their equity at about that 
rate.
    Senator Tester. What is $100 billion among friends? Thank 
you very, very much. I appreciate you both being here. I look 
forward to being able to find the information Secretary Mnuchin 
said was online. Take care. God bless.
    Chairman Crapo. Senator Cotton.
    Senator Cotton. Thank you, Mr. Chairman. Secretary Mnuchin, 
Chairman Powell, thank you both for being here.
    I want to speak about the Primary and Secondary Corporate 
Credit Facilities. As of today, those facilities are available 
to companies that have ratings from public rating agencies like 
S&P and Moody's. As you know, that can be a very expensive 
process. Some companies do not want to go through the cost or 
the rigmarole of getting those ratings but are highly 
creditworthy. These companies often tend to be privately owned, 
sometimes family owned. They can have very large employee 
bases. We have some in Arkansas. In aggregate, they are 
employing thousands of workers. I think probably all the 
Senators on this Committee, maybe all 50 States, have companies 
that are in this category. Oftentimes they sell loans directly 
to insurance companies like life insurers that are rated by the 
National Association of Insurance Commissioners. Those ratings 
are high quality. They are the functional equivalent of a 
public rating agency like an S&P or Moody's.
    Secretary Mnuchin, what is the possibility of opening up 
those facilities to companies that are selling those kind of 
loans with those kind of creditworthiness ratings from the 
NAIC?
    Secretary Mnuchin. Senator Cotton, I have appreciated the 
opportunity that you brought this to our attention, and as I 
have suggested, I am working with the Fed very closely to see 
if we can accommodate using those NAIC ratings, and if indeed 
there is some private ratings that can be done on a level that 
is not costly to the companies. But we are committed to make 
sure that these companies can use the facilities as well.
    Senator Cotton. Chairman Powell, can I get your perspective 
on that question?
    Mr. Powell. Yes. If I understood your description of the 
companies, they sound more like Main Street companies than 
primary or secondary credit market. Those are for investment 
grade issuers who issue public bonds. If I misunderstood, I am 
sorry. But----
    Senator Cotton. On the Main Street Facility, Mr. Chairman, 
I think the limitation that some companies might face is that 
they exceed the employee cap, which I understand to be 10,000. 
It would be similar to the Main Street Lending Facility.
    Mr. Powell. Well, I would just echo what Secretary Mnuchin 
said. We are working on this problem.
    Senator Cotton. Thank you for that. And, Mr. Secretary, any 
thoughts on when that decision might be made so these companies 
can get the certainty on whether they will have access to that 
facility or another facility or perhaps a brand-new facility?
    Secretary Mnuchin. I understand the importance of this, and 
I will commit to try to get back to you within the next week. 
And we want to make sure that if there are companies that slip 
through these two facilities, the Chair and I will work 
together to make sure that we deal with those issues so that 
they have funding.
    Senator Cotton. OK. Thank you both for that, and thank you 
for your work on this question over the last couple weeks.
    Secretary Mnuchin, I now want to turn to a question about 
the Paycheck Protection Program. It is a very specific 
question, but I got it coming in my office this morning from 
one of our small community lenders in Arkansas. I suspect many 
other lenders have the same question. I suspect that banks 
across all of our States have this question. The note we 
received said, ``We are required to file a PPP version of SBA 
Form 1502 by Friday for all the loans we funded, yet the 
guidance and format of the reporting requirements have not been 
issued. We are reaching a critical point in time. As you know, 
banks have to extract this information from our core, and that 
can be both time-consuming and tedious. We ask for a little 
more detail. That detail is as follows: Banks will have to 
extract these data points from our primary core software 
system. This will require programming to mine these data 
points, then merging into the required formats. Then we have to 
inspect for accuracy. This will require several days to 
accomplish. It is not as a simple as pushing a button and the 
data is populated.''
    Mr. Secretary, given that this is Tuesday, the deadline for 
this is Friday, what is the prospect of getting more detailed 
guidance from the SBA as soon as possible or perhaps pushing 
that deadline back a little bit for all of these lending 
institutions to comply with what you need?
    Secretary Mnuchin. Mr. Senator, I believe we have already 
pushed that date back, but I will check on that and confirm it. 
And if there is a specific institution that has a problem, 
please let me know the name, and we will figure out how to 
accommodate that. We want to make sure that we get the 
information, but where there are small and medium-size banks 
that have issues, we will obviously try to figure out how to 
accommodate them.
    Senator Cotton. Thank you very much, and I thank you again 
for Treasury and SBA's willingness to work with all of us over 
these last 2 months to iron out all of these wrinkles as the 
CARES Act is applied in so many different situations. Thank 
you, gentlemen.
    I yield back my time, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Warner.
    Senator Warner. Can you hear me?
    Chairman Crapo. Yes.
    Senator Warner. OK, great. Thank you. And thank you, 
gentlemen.
    I want to start, Chairman Powell, from the comments I think 
you have made, and I want to reinforce them. I think we all 
realize and understand that losing a job at any point in your 
lifetime is an enormous challenge. Losing a job in the midst of 
a recession or depression could be devastating. I point to the 
survey that the Fed put out last week that literally said 40 
percent of our fellow Americans who make less than $40,000, 40 
percent of those folks had their jobs disappear between 
February and March. We all know as well that 36 million 
Americans were unemployed. We are Depression levels of 
unemployment. And I think statistics have always shown that 
particularly losing a job during a recession could actually 
incur long-time income losses, up to 19 percent over the coming 
decade, some of the statistics that I have seen.
    So I would again like you to take a moment to say--you 
know, we have to measure overdoing versus underdoing, but with 
this type of devastation, with this type of pain 
disproportionately hitting low- and moderate-income Americans, 
can you speak to us of the results and the long-term scars this 
would present if we do not take aggressive action?
    Mr. Powell. Thank you. I would be glad to. So there is 
clear evidence that we are going to have a situation where 
people are unemployed for long periods of time. That can 
permanently weigh on both their careers and their ability to go 
back to work and also weigh on the economy for years, equally 
so with small and medium-size businesses, which are the jobs 
machine of our great economy. If we allow unnecessary, 
avoidable insolvencies because of effectively a natural 
disaster, that, too, will destroy the work of many families and 
generations, but it will weigh on the economy. So those are 
things to keep in mind.
    As I said earlier, this is the biggest response by Congress 
ever and the fastest and the biggest from us, and still this is 
the biggest shock wave seen in living memory, and the question 
looms in the air: Is it enough? We will have to----
    Senator Warner. I would argue that historically, whether it 
is our country or other Nations, Governments tend to undershoot 
during these periods, and we now have 36 million Americans 
without work, and 40 percent of the folks under $40,000 a year 
losing their work, that this scar could be deep and wide.
    One of the reasons--I am going to turn to you, Secretary 
Mnuchin, and we have discussed this. I think a number of our 
colleagues on both sides of the aisle understand this. You 
know, we did some aggressive things for folks in the airline 
industry. We did some aggressive things for folks under 500. 
But that middle market that the Main Street Facility is 
supposed to address, I am gravely concerned that we need to 
both get that out and we need to be very aggressive with it. I 
did a letter to you all, to you, Secretary, yesterday, 
outlining some of the ideas that I hope you would be willing to 
lean into. But I want to--and you made mention earlier that you 
were willing to have some of that $75 billion at risk in this 
facility. But I would like you to speak to that a little bit 
more, specifically in terms of, as you build out the baseline 
of this facility, how much risk and how much of that capital 
did you expect to potentially lose, and I would love to have 
then the Fed Chairman very quickly echo whether he is willing 
to relook at some of the penalty fees that are, to my 
understanding, Fed regulations but not legislatively mandated. 
Secretary Mnuchin, you first, please.
    Secretary Mnuchin. Thank you. Well, Senator Warner, first 
of all, I want to personally thank you for the time that you 
spent with us during the legislative process in helping to 
craft these different pieces and your availability since then 
to work with us, so we appreciate your thoughts and will 
continue to work with you.
    As it relates to risking capital, as I have said, almost by 
definition, anytime that the Fed thinks they need capital, 
there is a risk to us. We obviously model our various different 
scenarios. We have obviously continued to adapt the Main Street 
Program to let more and more companies into it, and although we 
refer to it as one program, it effectively has three 
subprograms. So we run different scenario analysis. There are 
scenarios within Main Street where we could lose all of our 
capital, and we are prepared to do that. There are scenarios 
where the world gets better and we could actually make a small 
amount of money. But, again, as I have said, no different than 
Secretary Paulson during the TARP period. They did not think 
they were going to make money. Our intention is that we expect 
to take some losses on these facilities. That is our base-case 
scenario.
    Senator Warner. Mr. Chairman, do you want to address it in 
terms of the penalty rate?
    Mr. Powell. I would be glad to. So what we are doing here 
with these programs is we are making loans in times of severe 
stress, where markets are not working, not providing credit on 
reasonable terms, the original purpose of central banks. So 
what rate should we charge? And what we do is we charge a rate 
that is a little bit higher than the normal rate, but in most 
cases much below what the market is currently providing. That 
encourages prompt repayment. It helps those who cannot get 
credit, but not those who want credit from us to save a few 
basis points. And if markets are functioning reasonably well, 
we do not want to replace them. We want to be a backstop to 
those markets.
    Senator Warner. I think, Mr. Chairman, my time is up, but I 
would just urge you, these are extraordinary times, and I hope 
you will lean into this as much as possible.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman.
    Gentlemen, first of all, thanks. I appreciate the work that 
you have done and your organizations have done in making this 
whole thing work as well as it has in a very short period of 
time.
    I would ask, first of all, to Secretary Mnuchin, in 
discussing with our local lenders, they have got a number of 
questions coming in with regard to PPP, and specifically two 
different sections: Number one was the rule in which we asked 
that these loans be literally divvied out and accepted within 
10 days of the time of approval; and, second of all, how that 
relates to a June 30th date for the execution or completion of 
the use of those loans. And, Mr. Secretary, I do not find where 
there is actually a June 30th end date where that has happened 
in order to facilitate forgiveness of that loan.
    Can you talk a little bit about your option or the 
flexibility you have with regard to the PPP and the forgiveness 
of loans and that June 30th date that so many people have 
concerns about?
    Secretary Mnuchin. Well, let me just comment, I think the 
concern that people have, it is even bigger, that we would like 
to get a bipartisan technical fix. As you said, there is the 10 
days to disburse it. We have then given banks another 10 days 
if people have not sent back the documents. And then there is 
the 8-week period. So companies are really having issues with 
not necessarily being able to use it during that 8 weeks. They 
do not want more money, but want flexibility that they can use 
it in longer than an 8-week period. And as it relates to the 
June 30th issue, we are happy to follow up with your staff and 
talk about where that fits into the bill.
    Senator Rounds. Thank you.
    Chairman Powell, I noted with interest a letter from Vice 
Chair Quarles recommending that Congress give regulators 
discretion to loosen certain capital requirements prescribed by 
Section 171 of Dodd-Frank. Do you share the Vice Chair's 
thinking? And what additional measures do you think Congress 
and the Federal Reserve should consider?
    Mr. Powell. I do share that. So the idea is temporarily 
during this period, unusual, unique period in our history, the 
banks have been strong. They have been making loans. They have 
been taking in deposits. And because of the growth in their 
balance sheet, they are constrained by some of these 
regulations because they are taking on board very low risk 
assets. So we have tried to provide relief so they can continue 
to do what they are doing. So I do support that, and we have 
done a number of things, and, you know, we will let you know as 
we see the need for other adjustments.
    Senator Rounds. Thank you, Mr. Chairman.
    Secretary Mnuchin, one thought with regard to--in the 
middle of this COVID-19 pandemic, we still have a discussion 
about and on a regular basis get questions from taxpayers here 
about the amount of money that we have borrowed and what we are 
going to do about it. You are going to play a key role in how 
we lay out that repayment plan. Can you talk a little bit about 
the tools available to you specifically with regard to long or 
ultra-long Treasury bonds? I know it has been a hot topic, and 
I know that most recently you launched a 20-year bond. Can you 
talk about the maturities, how you plan on laying that out, the 
strategy that you are using to best accommodate our needs for 
the immediate liquidity, but also recognizing that you have got 
some tools available? And with these ultra-low interest rates 
that we are at right now, it may very well work to our benefit 
to feather this out over an extended period of time?
    Secretary Mnuchin. Well, thank you. I am glad you asked 
that question because I think it is very important. First, I 
would just answer prior to this we spent a lot of time looking 
at 50- and 100-year bonds and determined that there just was 
not enough demand to make it worth it given borrowing sizes. We 
did get advice on a 20-year, so we have added the 20-year. That 
gives us the ability to both extend the duration as well as to 
raise a significant amount of funds. So it is my intention, as 
you have described, to borrow a lot of money in a short term to 
have the funding, but then to expand our financing in 10-, 20-, 
and 30-year bonds. What I would like to do is lock in a 
significant amount at very low interest rates so that the money 
we are borrowing can be paid back and dealt with over a long 
period of time.
    Senator Rounds. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    Today's hearing takes place in the worst economic crisis of 
our lifetimes. Unemployment is now at Great Depression levels. 
Nearly 40 percent of people making less than $40,000 lost their 
jobs in March alone. Businesses are shuttered and they may 
never reopen.
    Congress passed the CARES Act and put nearly half a 
trillion dollars worth of taxpayer money in corporate bailout 
money in your hands. This is not the PPP or the Small Business 
Fund, but half a trillion dollars for midsize and giant 
corporations. So I want to talk a little bit about where that 
money is going.
    The law gives Treasury and Federal Reserve the authority to 
write detailed rules determining which companies get taxpayer 
relief and how they can spend that money. And over the past few 
weeks, the Fed has been putting out these rules in the form of 
what you call ``term sheets.''
    So, Secretary Mnuchin, you have said that the jobs numbers 
will improve. In fact, on Fox News, you said, ``We will have a 
better third quarter, we will have a better fourth quarter, and 
next year is going to be a great year.''
    Now, to make that happen, people are going to need jobs. So 
does this mean that you will require companies that receive the 
bailout money from taxpayers to keep their workers on payroll?
    Secretary Mnuchin. So let me just comment. I have said 
publicly and I will say again I think the job numbers will get 
worse before they get better. So I just want to be very clear 
that I think that June will be a very difficult quarter.
    As it relates to the CARES Act, I take great pride in the 
bipartisan support on these bills, and these specifics were 
negotiated on a bipartisan basis very clearly in each one of 
these programs, and it is our intent in the 13(3) facilities to 
fulfill both the spirit and the details of the law. So 
different facilities have different requirements.
    Senator Warren. So, I am sorry, Secretary Mnuchin, that is 
not quite right. What the law specifically does is gives you 
the specific authority to determine the terms on which these 
loans are made and who is going to be able to get them for 
these midsize and giant corporations. And so I have a very 
simple question for you. You say the economy is going to 
recover. It is going to take jobs in order for that to happen. 
So what I want to know is: Are you going to require companies 
that receive money from this half a trillion dollar slush fund 
to have to keep people on payroll? It is a simple question. Yes 
or no, are you going to require that?
    Secretary Mnuchin. First, let me say that our number one 
objective is keeping people employed.
    Senator Warren. Good. So are you going to require that----
    Secretary Mnuchin. I want to be very clear.
    Senator Warren. ----of people who are getting taxpayer 
money? That is my question.
    Secretary Mnuchin. Again, we negotiated very significant 
restrictions on employee compensation, on dividends, on 
buybacks, and in the Main Street Facility we have put in a 
provision that we expect people to use their best efforts to 
support jobs. But----
    Senator Warren. But--I am sorry. I have very limited time 
here, Mr. Secretary. Let me understand what you are saying. In 
all the facilities that are not the Main Street Facility, you 
are not putting in any requirement for payroll, and the Main 
Street Facility is something about commercial reasonable effort 
to be able to maintain jobs. In other words, if somebody fires, 
if a corporation fires a bunch of people, then gets Federal 
taxpayer money, you are fine with that; or if they take a bunch 
of Federal taxpayer money, and, well, it did not work out 
commercially for us, then they can fire people.
    So I take it your answer to my question whether or not you 
are going to require as part of the terms of the loan that 
people be kept on payroll is no? Isn't that right, Secretary 
Mnuchin?
    Secretary Mnuchin. That was discussed with people on both 
sides of the aisle, and the determination was made----
    Senator Warren. I am talking about term sheets.
    Secretary Mnuchin. ----at the time----
    Senator Warren. I am sorry, Secretary Mnuchin. I am talking 
about your term sheets that you are putting out, and you are 
telling me you are not going to require the payroll--let me ask 
you one more question. Taxpayers are on the hook here for 
nearly half a trillion dollars. You are not going to require 
that they keep a single person on payroll. There are some 
rules, though, in the term sheets, as you identified earlier, 
like prohibiting companies from getting bailout money, from 
double-dipping in other CARES programs. And by law, companies 
that get this money are going to have to sign agreements 
certifying that they are in compliance.
    So, Secretary Mnuchin, here is what I want to know. Will 
you create a certification process that ensures that executives 
are held personally liable and are subject to criminal 
penalties if they provide false information or misuse bailout 
funds?
    Chairman Crapo. And if you could be brief, Mr. Secretary.
    Secretary Mnuchin. We will review that, and, again, I would 
just comment on programs like the airline programs had very 
specific requirements to keep jobs, which was the intent of 
Congress.
    Senator Warren. That is right, and the rest was left up to 
you, and what you are saying is that you will not do it. You 
know, we are in a situation where 35 million Americans have 
filed for unemployment. You are in charge of over half a 
trillion dollars. You are boosting your Wall Street buddies, 
and you are leaving Americans behind. I think that----
    Secretary Mnuchin. Senator Warren, I think that is a very 
unfair characterization, and these issues were discussed with 
both Republicans and Democrats at the time. You were not 
necessarily part of those discussions, but these were 
completely discussed.
    Senator Warren. You were given the authority to determine 
the terms. You have said it yourself. You are putting out term 
sheets, and those term sheets do not require that a single 
corporation----
    Chairman Crapo. Senator----
    Senator Warren. ----getting billions of dollars in taxpayer 
money retain one job.
    Chairman Crapo. Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman. Thank you both for 
being here today. I look forward to these quarterly updates.
    Chairman Powell, when you took this responsibility, the Fed 
had about a $5 trillion balance sheet. You worked it down to 
about 3.8. It was about 4 when the COVID-19 crisis hit. With 
the money supply increasing from $3.8 to $5 trillion recently, 
with the debt being at $23 trillion, and with about two-thirds 
of what we have done so far in the $3 trillion relief package 
it looks like goes to debt, and with the potential for more 
movement by the Fed that would take the balance sheet now from 
$4 trillion just in March, the five moves you made takes it up 
to potentially $13.5 trillion. It is around probably $7 
trillion today, and it could go north of 14 if, in fact, the 
Main Street Program is fully levered up. Help us understand, I 
mean, how do you put this genie back in the bottle? Help us 
understand how you are thinking about this demand on capital, 
demand for capital and what it might do to interest rates in 
the short term and the long-term implications of what we have 
just done. This is not a criticism at all. It is just I would 
love to get your thoughts of how we should be thinking about 
that balance sheet given that China, Japan, EU, all the other 
big central banks are doing fairly similar moves, just not as 
dramatically as we have done.
    Mr. Powell. So when we expand our balance sheet, when we 
bought securities, as you know, Senator, so we bought a lot of 
Treasury and MBS securities to get those markets working. As 
these facilities grow, we will also expand our balance sheet, 
and those also--you know, that expands the money supply. I 
would expect that over time--and that time will probably not be 
very soon, but over time the assets that we have on our balance 
sheet from this era will come to maturity. They will roll off, 
and the balance sheet will again very gradually return. This 
will be some years down the road, I would think.
    Senator Perdue. If I could interrupt, I watched how hard it 
was to get us from this 4.1 to 3.8 in the latter stages of that 
and the consternation it had both politically and economically. 
So you are confident that over time we will be able to manage 
that size balance sheet?
    Mr. Powell. So what really matters is the size of the 
balance sheet relative to the size of the economy, and that 
came down quite significantly from the end of 2014 until 2017 
just by holding the balance sheet constant. So it can be done 
in a way that is sort of passive and gradual, and it was for 
about 3 years. We came down from, what, 25 percent of GDP to 16 
or 17 percent of GDP. So it can be done over time.
    In the meantime, I would say it does not have implications 
for inflation. It does not have particularly problematic 
implications. I am not saying there are no limits to this, but 
it is not something that raises financial stability or 
inflation concerns today.
    Senator Perdue. Thank you.
    Secretary Mnuchin, I just want to thank you and echo what 
Tim Scott said earlier, and that is about your availability 
through this crisis. I know you are recently married, and I do 
not know where your wife is these days, sheltering in place. I 
am sure you have not seen much of her. Thank you for all your 
sacrifice in making this thing happen.
    I want to correct the record. We have been told in this 
meeting that there is no data out there, but I want to 
highlight some numbers for us here. First of all, the Dodd-
Frank bill killed about 4,000 community banks in about 6 years. 
There was a bipartisan bill done in January of 2018 that 
modified the most onerous parts of that and saved our community 
banks, and they are the rock stars in this process, in the PPP 
program, anyway. I have a question, Secretary. Eight hundred 
banks were approved under the SBA system prior to this; almost 
5,000 banks made 4.3 million loans and so far put out $520 
billion to companies under 500 employees. And, by the way, 99.8 
percent of that $520 billion went to companies with fewer than 
500 employees, so it did want we wanted to do. And 93 percent 
of those loans are $350,000 or less.
    My problem is this, Secretary: I think we have on two 
levels, one in the bill itself and one that is happening now in 
what we have done here, is that we have disincented people to 
come back to work. Even now my State is beginning to open up, 
and, by the way, safely. We have two constituent groups out 
there, the military and essential workers, to look at how they 
have managed their protocols and so forth while they manage 
through this crisis. It gives me great confident that we can 
open the economy up. The unemployment premium is keeping people 
from coming back to work. There are employers in my State who 
really want people to come back to work, but they are saying, 
``No. Why would I do that? I am going to enjoy this premium 
right now, and then call me back in a couple of months.''
    The second thing is a lot of small employers actually 
encouraged a few weeks ago their employees to go on 
unemployment even though they were getting money and they were 
hoping that they would--when the revenues started when they 
opened up, they would begin to then bring the people back and 
then use the loan to pay salaries. How would you help us think 
about how to deal with that? The Labor Department at one point 
said they were going to put some rules out about this premium. 
And the second thing is the enforcement behind if an employer 
wants an employee to come back to work, the employee should no 
longer be qualified for unemployment insurance. Would you 
address that?
    Chairman Crapo. And if you could be brief, please.
    Secretary Mnuchin. Thank you. And let me just say, you 
know, we are aware of the technical problem here, and we want 
to have a technical fix on the unemployment insurance. But, 
specifically, let me just comment on the PPP. If you offer back 
a worker and they do not take that job, they will be required 
to notify the local unemployment insurance agency because that 
person will no longer be eligible for unemployment.
    Chairman Crapo. Thank you.
    Senator Schatz.
    Senator Schatz. Thank you to all of the testifiers and 
panelists.
    Chairman Powell, I want you to take us through two very 
simple scenarios. The first is if Congress takes no additional 
action in the next couple of months, and the other is if 
Congress steps into the breach and passes another fiscal policy 
bill.
    I know you are loath to weigh in on specific policy 
recommendations, but I want you to talk in terms of the overall 
economy about the impact on quarters 3 and 4 should we decide 
to say that the bills that we have passed are enough.
    Mr. Powell. I think it really depends on the path of the 
economy, honestly. As I said, my concern has been the risk and 
possibility of longer-run damage to the economy through 
unnecessary insolvencies on the part of households and 
businesses and long-term unemployment, and that if we find 
ourselves in that place, we may have to do more, and it could 
also be something that Congress would want to do. I think--go 
ahead.
    Senator Schatz. So according to census data, about half of 
small businesses are going to run out of cash within a month. 
States are slowly reopening the economies, but consumer 
behavior is not going to rebound to normal within a month. Do 
you think that there is going to be a strong enough rebound in 
economic activity in the next 1 to 3 months for that alone, 
from what we have already done alone, to prevent thousands of 
small businesses from going under? Or do you think there is a 
need for additional fiscal policy?
    Mr. Powell. I think we are going to see here fairly quickly 
how the reopening goes, and it is very hard to know. We have 
not done this thing before. No one has done this sort of thing 
before. So I think you are going to be getting a lot of 
information fairly quickly here in terms of what may be needed. 
I make my comments on fiscal policy at a general level. I am 
reluctant to talk about timing and specific provisions. It is 
really not the Fed's role. We do try to stick to our knitting.
    Senator Schatz. So why don't you go ahead? I will give you 
an open-ended question. Please provide the panel with some 
comments about the importance of fiscal policy over the next 6 
to 9 months.
    Mr. Powell. So it is a combination of a couple things. 
First, just, as I mentioned, the risk of lasting damage to the 
productive capacity of the economy through the labor force 
because of longer-term unemployment and through unnecessary, 
avoidable insolvencies on the part of small and medium-size 
businesses. Those two things create a real risk.
    The other thing I will point to is what we do is we address 
liquidity problems, not solvency problems. We have lending 
powers, not spending powers. So over time--and this is not a 
certainty; this is a possibility. Over time, solvency problems 
emerge from liquidity problems. Liquidity problems can develop 
into solvency problems with the passage of time. That all 
depends on the path of the economy, how well the reopening 
goes, and, you know, which path we find ourselves on.
    So I think what Congress has done to date has been 
remarkably timely and forceful. I think you could say the same 
about what we have done. I do think we need to take a step back 
and ask, over time, is it enough? And we need to be prepared to 
act further, and I would say we are if the need is there.
    Senator Schatz. It seems to me that the distinction between 
a solvency problem and a liquidity problem applies to big 
institutions, big corporations, even Governments. But when you 
are talking about a small business or a family, there is not 
much of a difference between having a cash-flow problem and 
simply being flat broke. And it seems to me that that 
distinction, which you are able to make and rightly do as the 
head of the Federal Reserve, is a rather abstract one for the 
companies that are eight persons and the families that are sort 
of at economic death's door. They do not distinguish between a 
solvency problem and a liquidity problem. They have run out of 
money.
    Secretary Mnuchin, Section 4114 of the CARES Act states 
that carriers receiving payroll grants shall ``refrain from 
conducting involuntary furloughs or reducing pay rates and 
benefits until September 30, 2020.'' But on April 21st, United 
Airlines received $4.9 billion, and on May 1st, United 
announced that it would reduce 28,000 workers from full-time to 
part-time within 2 weeks. Was that announcement a violation of 
the terms of the Payroll Support Program?
    Chairman Crapo. And, again, please be brief.
    Secretary Mnuchin. We believe right now that they are in 
compliance with the program.
    Senator Schatz. Right now. Were they violating this when 
they first announced it?
    Secretary Mnuchin. Again, I do not want to go through 
specific situations with specific companies. I will say right 
now we believe they are in compliance with the agreement.
    Senator Schatz. Thank you.
    Chairman Crapo. Senator Tillis.
    Senator Tillis. Thank you, Mr. Chairman. And, Chairman 
Powell and Secretary Mnuchin, thank you for your, I think, 
heroic work. Your teams have done a great job under immense 
pressure, and I appreciate it.
    One thing I want to go back to that was mentioned by some 
of my colleagues about the CMBS, I like the fact that the 
Administration expanded TALF to cover legacy CMBS. I think that 
is a good step. I personally believe that commercial real 
estate is under severe stress and is likely to get worse before 
we start seeing a turn and a more positive growth, more 
positive indicators from the economy.
    One thing that I am concerned with, Secretary Mnuchin, is 
right now it looks like we have only got about 15 percent from 
the American Hotel and Lodging Association, about 15 percent of 
forbearances of any kind from the CMBS servicers or service 
providers. That seems like a low number to me. One, I would be 
curious if you think that that is low given the circumstances 
right now, and then what more we may need to do congressionally 
to get the servicers and the borrowers to the table.
    Secretary Mnuchin. It does seem a bit low to me as well. We 
do have a structural problem of loans that are in 
securitizations and how they have to be dealt with with the 
special servicers. So, obviously, as it relates to the banks, 
the banks have much more flexibility, but this is a technical 
issue, and we may need to come back to Congress to work with 
you on a technical fix.
    Senator Tillis. Well, thank you. I would like to hear about 
that. I think that we need to do it because I am gravely 
concerned with the retail shopping, the hotel/lodging industry, 
and those are industries that are largely going to lag behind 
some of the business startups that we are seeing in some 
States. So I would be interested in your feedback.
    I was also kind of curious about the TALF Program and 
potentially other areas where we should expand. I am thinking 
about new issues, CMBS, RMBSs, installment loans. Have you 
thought about that? And have you also thought about less than 
Triple A?
    Secretary Mnuchin. We have thought about----
    Senator Tillis. And that would be----
    Secretary Mnuchin. We have thought about all of those, and 
I would just say, you know, I want to thank the people at the 
Fed and the Treasury who have worked around the clock to get 
these facilities up and running. We have prioritized these. But 
I assure you as the Fed Chair and I have said, we will look at 
all of our options to make sure we support jobs across the 
spectrum.
    Senator Tillis. I would particularly be interested--you do 
not have to expand on it here, but on new issues, I am very 
interested in that, to see what you are gaining, what you think 
is within the realm of possibilities.
    Chairman Powell, do you have anything to add to that?
    Mr. Powell. No; just our commitment, as the Secretary 
suggested, to keep our minds open and looking at evolving those 
facilities as we learn more.
    Senator Tillis. Secretary Mnuchin, I have one question for 
you and then a final question for the both of you. I am 
thinking about more about the tax burden right now on middle-
class households. Do you think any of our future work here 
should include a treatment for maybe a reduction in the tax 
burden on middle-class households and whether or not that would 
be helpful?
    Secretary Mnuchin. I think that is something that should be 
seriously considered.
    Senator Tillis. Now, the final one that I have--Chairman, I 
am going to keep to the time. I have a growing sense that we 
have a bit of a donut hole, those that are not quite right for 
the Paycheck Protection Program because of their size but not 
quite big enough or the nature of their business to be eligible 
for the upcoming Main Street Lending Facility. So have you all 
looked at--and, Secretary Mnuchin, I appreciate what you said 
about the 8-week covered period. I think there are lot of 
mechanics in there and what can be included as a forgivable 
portion of the proceeds. All of that we need to look at; we 
need to know fairly quickly. We know the covered period is 
going to take congressional action. But when we massage the 
PPP, that may fix the problem for some of these people I 
describe as being in the donut hole. But are you seeing that 
now, I mean, we do not have the full information on the Main 
Street Lending Act, but I get a sense that there are going to 
be some people caught in between. What are your thoughts about 
more we need to do there? That final question is for both you 
and Chairman Powell.
    Secretary Mnuchin. I would say our objective is to make 
sure that there are people that do not fall out in between. So 
between the PPP, the EIDL loans, and the Main Street Program, 
it is our objective to try to cover as many of those companies 
as possible.
    Mr. Powell. In fact, that is one of the reasons why we went 
to a smaller minimum loan level on the Main Street Lending 
Program in the last turn of the term sheet.
    Senator Tillis. Thank you, Chairman Powell and Secretary 
Mnuchin. I also look forward to seeing the Main Street Lending 
Act mobilized in the coming couple weeks. Thank you.
    Thank you, Mr. Chair.
    Chairman Crapo. Thank you.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman.
    Secretary Mnuchin, Chairman Powell recently acknowledged 
the need for additional fiscal relief and just in this hearing 
acknowledged in response to Senator Menendez that State and 
local layoffs of police and firefighters, first responders, and 
teachers will make a bad economic situation even worse. Do you 
agree with that assessment?
    Secretary Mnuchin. Well, I have recently provided guidance 
on the $150 billion we sent to the States that they can use 
that money for police, fire, and first responders without 
restrictions. So I hope there would be no layoffs as a result 
of that relief. That was our objective.
    Senator Van Hollen. Right. But in addition to them--so that 
just moves the burden onto other public service providers, 
including teachers, health care workers, public health workers. 
Wouldn't you agree that layoffs of those workers or any workers 
just takes a bad situation and makes it worse?
    Secretary Mnuchin. I think it does, but I think the 
question that Congress and the Senate need to address is who 
should pay for that, which taxing authority, whether it is the 
State or the Federal Government. And I look forward to working 
with the Senate on a bipartisan basis to----
    Senator Van Hollen. Well, Secretary Mnuchin, you said which 
taxing authority. As you know, States have balanced budget 
requirements. The Federal Government does not. It just borrowed 
$3 trillion. It seems to me we need to take action here to 
prevent a bad situation from getting even worse.
    Let me ask you about the PPP program. A bipartisan group of 
Senators has written and spoken to you about some of the 
unilateral and unnecessary conditions the Treasury regulations 
imposed on PPP. In fact, the Small Business Administration IG 
recently said that the 25 percent limit on forgiveness for 
fixed costs did ``not align with the language in the statute.''
    Senator Rounds just raised another issue, which is not a 
design flaw in the statute, in my view, regarding the June 30th 
deadline for qualifying for full forgiveness. The House in the 
HEROES Act reformed both of these provisions. Do you agree with 
the changes that the House made in the HEROES Act with respect 
to PPP?
    Secretary Mnuchin. I am not familiar with their specific 
language, but I am happy to look at it. But I do want to 
comment on the 75-percent issue, and SBA wrote back to the IG 
to disagree with that. And I have spoken to both Cardin and 
Rubio on this. The program was designed for 8 weeks plus 
overhead----
    Senator Van Hollen. Mr. Secretary, I know what your 
position is. I just wanted to highlight the position of the 
Inspector General of the SBA, and in my view, you cannot find 
that 25-percent limitation anywhere in the statute. I challenge 
anyone to take a look and find it there.
    I would ask you to take a look at the Rebuilding Main 
Street Initiative that a number of us had put forward. I do 
think it can get bipartisan support, and I look forward to your 
responses there.
    Let me turn to Chairman Powell and just say that I believe 
that overall the Fed has acted quickly and for the most party 
necessarily and appropriately. But I have serious concerns 
about the actions you have taken with respect to the Secondary 
Market Facility with respect to junk bonds.
    In response to Senator Sasse, you emphasized that, at least 
with the TALF Program, you were essentially helping those with 
Triple A ratings. But when you look at the Secondary Market 
Facility, you have purchased junk bonds, and we have this 
strange situation where the same day we had unprecedented 
damage in terms of unemployment numbers, the stock market was, 
in fact, going up. And you pointed out that, you know, most of 
the people being hurt are those earning less than $40,000 a 
year. In fact, 40 percent of them have lost jobs. And it is not 
clear to me why putting money into junk bonds is helping folks 
on Main Street. In fact, it puts the public in a first loss 
position behind even the most subordinated bond holder and uses 
public funds to take on years and even decades of future cash-
flows with the price risk.
    Can you respond to that concern?
    Mr. Powell. Thanks. I would be glad to. So the only high-
yield bonds that we can buy are those of companies that were 
investment grade on March 22 but have been downgraded, so-
called fallen angels. These are in many cases some very large 
U.S. companies with many, many thousands of employees, and we 
made them eligible for the Primary Market Corporate Credit 
Facility, and we do not want to have, you know, a cliff there 
where the investment grade markets are working well but the 
non-investment-grade markets are not. So we made a very 
limited, narrow set of actions to support market function in 
those markets, including buying ETFs, exchange-traded funds. 
That is a portfolio effect, and that has had an effect to 
improve market function. We may have to be lending money to 
those companies, but even better, they can borrow themselves 
now, and a lot of that has been happening, and that is a really 
good thing.
    So that is kind of why we did it, and it is a fairly narrow 
intervention. We are not buying junk bonds generally across the 
board at all.
    Senator Van Hollen. Mr. Chairman, if I could just follow up 
briefly. I think a lot of those bonds were already in trouble 
before the intervention, and their troubled was not directly 
related to the pandemic. And if you could get back to me and 
just show me where the Fed has the authority to purchase this 
kind of below investment-grade instruments, I would appreciate 
it.
    Thank you.
    Chairman Crapo. Senator Kennedy.
    Senator Kennedy. Chairman Powell, do you believe that 
States and cities are going to experience revenue shortfalls as 
a result of the economic lockdown to try to contain the spread 
of the coronavirus?
    Mr. Powell. Yes, Senator, I do think that is what we are 
seeing.
    Senator Kennedy. Do you think they are going to be 
substantial?
    Mr. Powell. Yes, I do.
    Senator Kennedy. Is your Municipal Liquidity Facility set 
up?
    Mr. Powell. Well, we are probably 10 days away, 2 weeks 
away from it actually being operational. Not quite yet is the 
answer.
    Senator Kennedy. And as I understand it, you basically will 
buy short-term paper like revenue anticipation notes from the 
States, which will allow those States to issue that short-term 
paper at a lower interest rate? Am I correct?
    Mr. Powell. Well, they will be able to issue it at all in 
many cases, so, yes, we are supporting market function there. 
By the way, that should support market function across the 
municipal markets in longer-term maturities, too.
    Senator Kennedy. Do you know how many States are prohibited 
by their Constitution from borrowing money to pay for operating 
expenses?
    Mr. Powell. I think 49 States have a balanced budget 
requirement.
    Senator Kennedy. Yes, sir, but a lot of States have--in 
their State Constitutions they are prohibited from borrowing 
money to operate Government. They can borrow money to build 
things, but not to operate Government. Are you aware of that?
    Mr. Powell. Well, I thought most States could borrow during 
the course of a year for maturities of less than a year to 
smooth out the inflow of cash, revenue anticipation notes, tax 
anticipation notes.
    Senator Kennedy. Right. Have you had a lot of inquiries 
about the Municipal Liquidity Facility?
    Mr. Powell. Yes, Senator, we sure have.
    Senator Kennedy. OK. Secretary Mnuchin, do you agree with 
what the Chairman said?
    Secretary Mnuchin. Yes.
    Senator Kennedy. OK. Let me offer you an observation, Mr. 
Secretary. I am not expecting you to comment on it. It looks to 
me like the game plan is to have Senator McConnell, Senator 
Schumer, Leader McCarthy, Speaker Pelosi, and you go off and 
negotiate a deal on the next package, if there is one. And you 
will bring that deal back to the Republicans and Democrats in 
both Houses. And if the past is any indication, the Republicans 
and Democrats in both Houses who do not get to participate in 
the negotiations will moan and groan and complain and then boo, 
and follow their leaders into the chute like cattle.
    I am not sure that is going to work this time. I think that 
whatever deal you all come up with is going to receive serious 
pushback from both Republicans and Democrats in both Houses for 
a variety of reasons. I could, of course, be wrong, but I doubt 
it.
    Why would we not agree to allow the States to use the $150 
billion that we have already appropriated to them to address 
shortfalls in their revenue base as a result of the 
coronavirus?
    Secretary Mnuchin. Well, Senator Kennedy, I just want to 
comment on the first thing. I have no intention of doing what 
you have just described, nor do I----
    Senator Kennedy. Well, I do not want to debate----
    Secretary Mnuchin. ----think that happened in the past.
    Senator Kennedy. ----that, Mr. Secretary. It has been done 
in the past. It was done the last time. I am not being 
critical----
    Secretary Mnuchin. Senator, there were at least 20 or 30 
Senators, both Republicans and Democrats, that participated in 
the detailed analysis of the last bill.
    Senator Kennedy. Well, I understand, but there are a lot 
more Members in the House than the Senate. And I am not being 
critical. I am just telling you. That is the way it works 
around here, and we all know it.
    Why would you not be supportive--we have already spent $150 
billion in the CARES Act. The States have it. We know they are 
going to have shortfalls. We may not be able to pass another 
bill. I think it is less than 50 percent chance of passing 
another bill. Why would we not allow States, without 
appropriating any new money, to use that money to address 
revenue shortfalls that you and the Chairman of the Fed both 
agree are going to exist and be substantial? And why would we 
not do that today?
    Secretary Mnuchin. Well, Senator Kennedy, I appreciate your 
bill, and I know I had the opportunity to meet with you and 
other Senators with the President. And if there is bipartisan 
support for that, I am sure that the President and I would look 
forward to that.
    Senator Kennedy. What would it take for you to agree to 
support it? How do I demonstrate bipartisan support?
    Secretary Mnuchin. Again, I think I have a call scheduled 
with you later today, so I am happy to talk to your more about 
it. But, again, I think the President and I have said if there 
is bipartisan support for this and the money has already been 
allocated, that is something that I assume we would very 
seriously go along with. But, again, there has to be broad 
bipartisan support.
    Senator Kennedy. Right. How about if there were 60 votes in 
the Senate? Would you consider that bipartisan support?
    Chairman Crapo. And would you please be brief?
    Secretary Mnuchin. Again, I would just say I appreciate----
    Senator Kennedy. How much time do I have?
    Chairman Crapo. You are a minute and 15 seconds over.
    Senator Kennedy. I am sorry. I cannot see my clock.
    Chairman Crapo. We are going to have to figure that out. 
Several have had that problem.
    Senator Kennedy. Would you have him answer that one for me, 
Mr. Secretary, Mr. Chairman?
    Secretary Mnuchin. Again, I leave the details of that up to 
you and the Senators there. I appreciate the unanimous support 
we had previously, but I will leave that to you.
    Senator Kennedy. I am sorry I went over, Mr. Chairman.
    Chairman Crapo. No problem.
    Senator Cortez Masto, can you see your clock? Go ahead.
    Senator Cortez Masto. Thank you for joining us. Let me 
start with Chairman Powell.
    Chairman Powell, it was an interesting conversation you 
were having with Senator Schatz on liquidity problems versus 
the solvency problems. I do know that you have highlighted that 
some of the sectors--airlines and hospitality--are in rough 
financial shape. Because I come from Nevada and it is a 
hospitality-generated State where we get most of our revenue, 
can you speak to the challenges that hospitality and tourism 
sectors face right now?
    Mr. Powell. Sure. So I think sectors of the economy like 
that where the business model is to gather people in one place 
and entertain them, feed them, fly them around, whatever you 
are going to do, those are sectors where it will take some time 
for, I think, the public to return. That will happen, but it 
will take some time for the public to regain confidence and 
adapt to the new world and start traveling, taking vacations, 
going to restaurants, things like that.
    Senator Cortez Masto. And I am glad you brought that up 
because that is one thing that we have not talked about, was 
this notion that when we looked over our businesses--and I 
think we all and I personally, that is what we want. We have 
got to find this balance about opening our businesses in 
general. But they are only going to be as successful as the 
customer confidence that is there to patronize those 
businesses. And that is not just true for the hospitality 
industry. That is true for all businesses.
    I do know that the service and retail has been hardest hit, 
that business, and my understanding from some of the data that 
I have seen is over 2 percent of those businesses have closed 
permanently already. And so how are we to address this consumer 
confidence issue? Because I know that is something that you 
have thought about and talked about publicly, I have seen. What 
should we be doing?
    Mr. Powell. You know, one thing I will say is it affects 
different sectors of the economy differently. The ones we 
talked about are the ones where it is most important. Other 
sectors of the economy may be able to recover much more 
quickly, and we certainly hope so. But, you know, the number 
one thing, of course, is people believing that it is safe to go 
back to work, to go out, and that is about having a sensible, 
thoughtful reopening of the country, something we all want and 
something that we are in the early stages of now. That is what 
it will take for people to regain confidence, I think, and 
resume their activities--again, at a different pace depending 
on the nature of the business, the nature of the activity.
    Senator Cortez Masto. Right. And the health care piece of 
it, right? That they will feel safe going back out if they feel 
safe at--or they are going to be healthy and safe when they go 
into an establishment. Isn't that true?
    Mr. Powell. Yeah, it is the combination of getting the 
virus under control, development of therapeutics, development 
of a vaccine, all of those things, and also just, I think, you 
know, seeing what your eyes are telling you. You can feel it 
already, that people are doing things that they would not have 
done 2 months ago, a little bit at a time, and I just think 
that process will take time.
    Senator Cortez Masto. Yeah, and until that happens, many 
people are relying on local governments and State governments 
as their social safety net, right? They are telling them--
looking to local government and State Government to tell them 
how they can stay safe, they are opening businesses, where the 
health care facilities are, how they can get testing that is 
needed and contact tracing. Isn't it true that is where they 
rely on their local governments first off?
    Mr. Powell. Yes, and I think that is where the decisions 
will be made, is at State and local government. Also 
businesses, individual businesses. We talked to a lot of 
businesses and nonprofits and leaders in all those areas, and 
what I feel like is certainly for the larger ones, there is a 
very thoughtful process going on about this. But, ultimately, 
people will make their own minds up. You know, you can change 
the formal social distancing measures, but ultimately people 
are going to decide what they should and should not do with 
themselves and with their families. And I think that will boil 
down to having pretty good confidence that it is safe to go 
out.
    Senator Cortez Masto. Yeah, and I agree with you. I also 
know at least in my State that many are waiting and relying on 
their State and local governments to weigh in and help them 
make those determinations and set those guidelines and make 
sure their communities are safe. That is why funding for our 
State and local governments is so important, and I cannot 
stress that enough, not only in the next fiscal package that 
needs to come into State and local governments, but you also 
touched on the Municipal Lending Facility. I would like to see 
more of that available to smaller populated States and local 
governments. Nevada has 3 million population. There has to be a 
way to also give them the opportunity to get the liquidity or 
the funds that they need to ensure that they are providing that 
safety net, that social safety net to consumers in general.
    I know my time is up. Secretary Mnuchin, I have questions 
for you as well. I will submit those for the record. Thank you 
both for joining us today.
    Chairman Crapo. Thank you.
    Before I move to Senator McSally, I will announce to those 
remaining that a vote started about 10 minutes ago, and we 
still have a number left to go, so I ask you to please pay 
attention to the clock. Sorry that it just turns out this way 
at the end of these hearings.
    Senator McSally.
    Senator McSally. Thank you, Mr. Chairman. And, Chairman 
Powell, Secretary Mnuchin, good to see you virtually.
    I want to talk about China. As we know, they unleashed this 
virus on America and the world with their classic Communist 
coverup, deception, continued propaganda campaign, costing now 
over 90,000 American lives, 35 million Americans losing their 
jobs so far. We do not know who Patient Zero is. They destroyed 
samples. They silenced doctors. They kicked out journalists, 
impacted travel, international travel to seed this, and their 
reckless behavior continues to be at the root of all this.
    As you know, this is why we are here today. We are talking 
about the economy, which was very strong, now really 
struggling. People all over Arizona are really struggling 
because of the calamity that has come from this virus.
    I do not think anybody, I should say--actually, let me just 
ask. I do not think either of you think there is any reason 
that we should be rewarding China or Chinese State-owned 
enterprises, or individuals or entities that want China to 
prosper as we implement these massive initiatives to support 
the American economy. Is it fair to say neither of you want 
that to happen?
    Secretary Mnuchin. That is correct.
    Senator McSally. Chairman Powell.
    Mr. Powell. Senator McSally, that is really not a question 
for me. We are working on the economic response to this.
    Senator McSally. I know. But none of us as Americans want 
to see, you know, China or Chinese-owned enterprises 
prospering. So I want to talk about a company called 
``BlackRock.'' On March 24th, the Federal Reserve Bank of New 
York retained BlackRock as the financial agent to 
operationalize and transact with primary dealers in the Primary 
Market Corporate Credit Facility and the Secondary Market 
Corporate Credit Facility. As you know, these facilities serve 
as markets for companies to sell bonds and obtain loans during 
this situation, this downturn.
    Typically, there is a competition, a competitive bidding 
process, but BlackRock was selected for this one. As you 
probably know, BlackRock is one of the leading investment banks 
in Chinese funds, including helping Chinese companies list and 
go public on American stock exchanges. Chinese companies listed 
on American exchanges prohibit the Public Company Accounting 
Oversight Board, or the PCAOB, from reviewing their audit 
reports.
    On BlackRock's website they have a page titled ``Five Myths 
and Realities about Investing in China.'' According to 
BlackRock, one of the biggest myths about China is that Chinese 
State-owned enterprises do not control their economy. BlackRock 
even tries to back that up with data. I will not go into all of 
it, but it is ridiculous. BlackRock's ode to China does not 
mention anything about human rights abuses, military responses 
to the Hong Kong democracy protests, or even that the country 
is ruled by a Communist Party. Ironic that one of the world's 
largest investment banks and allegedly a staple of free markets 
neglects to mention the fact that Communists actually run 
China, and all while refusing to invest in a number of 
legitimate and legal industries here in America, but that is a 
separate issue.
    So my question is: How and why did BlackRock get selected 
as a financial agent for these facilities? How much money do 
they stand to make as the agent? And what, if anything, will 
prevent BlackRock from taking their profits that they earn to 
invest in their interests in China and Chinese State-owned 
enterprises?
    Mr. Powell. So I guess I will take that. We hired BlackRock 
for their expertise in these markets. They are actually an 
asset manager. They are a very large asset manager which is 
active in the markets that we are concerned with, with the 
Primary Market and Secondary Market Credit Facilities. It was 
done very quickly due to the urgency and the need for their 
expertise. We will rebid the contract as we in practice do 
going forward, and so that is where that is.
    The fees are a matter of public record, and we will be 
happy to supply those to you.
    Senator McSally. So what, if anything, can we do to prevent 
any of their profits from this to actually benefiting China and 
Chinese State-owned companies, which they are severely invested 
in?
    Mr. Powell. I would just say this: All large asset managers 
buy Chinese securities. These are global asset managers. It is 
in no way--I am not here to defend or criticize them for that. 
It is not really relevant to the work we want them to do. What 
we are trying to do is create conditions in which U.S. workers 
can keep their jobs or return to them, and that is what our 
sole focus is. We are not trying to reach out for other public 
policy objectives or deviate from that. We have really a laser 
focus on that, and we concluded that this company was the right 
one to be our fiscal agent in this place. Their views on 
anything else are really not important. What is important is 
that we do everything we can to support employment in the 
United States.
    Senator McSally. Well, let me just say it is important to 
all of us--and thank you for your leadership on this--to 
support our economy, to support jobs, to get our economy back 
on track. But it is also important that we wake up as Americans 
and that we hold China accountable and that they do not--they 
are not allowed to profit because of these investments 
taxpayers have made. So I am going to follow up with you on 
these issues. I really think BlackRock and others need to also 
wake up and do their patriotic duty, see what is going on here. 
China, Communist China, should not be profiting off of 
unleashing this calamity on the world, and that should be 
something that should unite all Americans, even if they work at 
BlackRock.
    Chairman Crapo. Thank you.
    Senator Jones.
    Senator Jones. Thank you, Mr. Chairman.
    Quickly, I will follow up. I agree that we need to hold all 
people accountable. China, the WHO, folks in this 
Administration--everybody needs to be held accountable if they 
had deficiencies in what was going on in this pandemic.
    Secretary Mnuchin, let me say I saw recently that the 
Treasury is going to begin issuing debit cards for Americans 
for their direct payments. You will recall that Senator Cotton 
and I sent a letter shortly after the passage of the CARES Act 
encouraging that. So I appreciate your willingness to do that. 
I think it is going to quickly get money to millions of 
Americans that have not received those direct payments as of 
yet.
    I wanted to also ask you about the Payroll Protection 
Program. As we have talked about a little bit early on, in the 
first round of funding, there were some problems with the 
banks, and there were underserved communities that are not 
getting their funds. And I think we have tried to correct that 
and are doing much better. But the SBA Inspector General issued 
a report in the wake of that that recommended that the agency 
start collecting demographic information on who got those 
loans.
    Can you commit to work with the SBA Administrator to make 
collecting demographic information mandatory for these PPP 
loans so that there is that much-needed transparency?
    Secretary Mnuchin. Well, I can tell you in the forms that 
the lenders are required, there is demographic information. We 
have been advised to make that optional and not mandatory, but 
we very much hope that people provide that. And let me just say 
we are very much committed to make sure that we serve the 
underserved communities with the money we have left.
    Senator Jones. Great. Thank you.
    Chairman Powell, you know, I also saw your speech and read 
your--saw the ``60 Minutes'' piece, and it kind of reminds me, 
in listening to some of the comments about this, of what Judge 
Taylor in ``To Kill a Mocking Bird'' said, that, you know, 
people are going to hear what they want to hear and they are 
going to see what they want to see. What I saw is a call to 
action from that. And one of the things that was talked about, 
that 40 percent of Americans that have lost their jobs and how 
it is affecting our minority communities, not only in their 
health and the disparities, what is being shone, a spotlight, 
is the disparities on so many things.
    You mentioned how this pandemic can exacerbate the existing 
gap of wealth and assets and ownership between minorities and 
even just poor people in general. We started this pandemic with 
about 40 million poor people. It is going to get much bigger 
than that, and it is going to be across racial lines.
    What can we do to try to narrow that gap, to make sure that 
the wealth gap does not get even greater as we open back up 
this economy?
    Mr. Powell. Well, the job losses that have been happening 
have been happening in the service economy, particularly in 
those parts where you are dealing directly with people, and 
that is a lot of less-well-paying jobs and that sort of thing. 
So if you look at the industries that have been really hard hit 
with job losses, it is those industries. It is restaurants, it 
is hotels, it is travel, things like that, and retail.
    I recommend, by the way, that report, ``Survey of Household 
Economics and Decisionmaking,'' which we release annually. We 
just released it, and that is where those statistics come from. 
There is a lot in there. And it is stunning how quickly 
households get into financial trouble, how little many lower-
income households have in the way of financial resources. These 
are longer-term problems to deal with. I think for now, you 
know, this very much calls on us to do what we can to support 
the economy. And as I mentioned earlier, we have 20-some 
million people out of work. We want to do everything we can to 
create a world where they can go back to their jobs or find new 
jobs. And I think that is something all of us as policymakers 
should be strongly focused on.
    Senator Jones. Well, thank you for that. And it seems to be 
connected to your comments of also making sure that we keep 
people in their livelihoods, to keep the unemployment numbers 
down. You know, I think from our standpoint we have been 
focused on both saving lives and saving livelihoods. And while 
we do not want to give folks incentives to stay on 
unemployment, we certainly do want to give incentives to 
businesses to open carefully.
    I would encourage you, if you have not, to look at the 
Paycheck Security Program that Senator Warner and others and I 
are going to be filing this week so that we can give these 
opportunities, because I am assuming that the more 
opportunities we can give employers to keep people on their 
payroll with benefits, that would aid in opening up the economy 
safely and trying to keep us from getting into that long-term 
recession. Would that be fair?
    Mr. Powell. I will be happy to take a look at your 
legislation, your proposed legislation.
    Senator Jones. Well, thank you, Mr. Chairman. I appreciate 
the opportunity. Thank you for coming, Mr. Secretary and Mr. 
Chairman.
    Chairman Crapo. Thank you.
    Senator Moran.
    Senator Moran. Mr. Chairman, thank you. Had I had more 
time, I would extol the virtues of both the Secretary and the 
Chairman in their efforts, their team, their public service 
during this crisis. In the absence of that time, I hope you 
understand the sentiments that that sentence expresses.
    I want to focus, I guess, Secretary Mnuchin. We have talked 
about PPP, and we have seen the consequences, the positive 
consequences that have come from the program. There are large 
businesses, Main Street, in which the facilities are being 
developed to assist, but I am worried about other businesses. I 
would use an example. Not that I am lobbying for any company, 
but an example that comes to my mind in Kansas is Yellow 
Roadway Trucking Company. It employs almost 30,000 people. It 
is not investment grade. It has leverage, and it is a company 
that, in the absence of assistance, the jeopardy of its 
employees is significant. I think there are a lot of companies 
out there like that. I think there are a number of other 
companies in Kansas like that. And I want to make certain that 
we are doing the things that are necessary to prepare to be of 
assistance to them.
    I think Senator Toomey and Senator Warner earlier indicated 
that very few of us expected Treasury not to have to take 
losses, that there needs to be some risk taking here. And I 
want some kind of assurance that under the B4 program, the B4 
facilities, that these kind of companies that are hugely 
important to the economy can receive some assistance with the 
facilities at Treasury and the Fed.
    Secretary Mnuchin, is there some level of comfort I can 
have?
    Secretary Mnuchin. You have my assurance that we will go 
back and look at that specific company and see what we can do 
and get back to you.
    Senator Moran. I hope it is more than that, because it is 
not just that company. There are a number of companies across 
the country, not just in Kansas, that this is----
    Secretary Mnuchin. We will look at companies like that, and 
as I said before, we want to make sure that there are 
facilities that companies do not fall through the cracks. So 
between all the different facilities, we are trying to do as 
much as we can within our powers.
    Senator Moran. Let me suggest to you that timing is of the 
essence, just as it was in PPP. The circumstances companies 
face today and lay off and furloughing employees are present 
and around the corner. So I encourage the precipitous but 
thoughtful action in addressing these circumstances.
    Let me see if I can get two other questions in. One, do we 
have a timeframe, Mr. Secretary, for further guidance regarding 
PPP loan forgiveness?
    Secretary Mnuchin. There is some guidance that just came 
out on loan forgiveness that we believe deals with most of the 
major issues.
    Senator Moran. And then a second question, Secretary 
Mnuchin. Does Treasury and SBA plan to issue guidance that 
would allow 501(c)(3) organizations to utilize the alternative 
size standards for PPP eligibility?
    Secretary Mnuchin. We are reviewing that specific request, 
so we have had that request, and we are reviewing it.
    Senator Moran. Is that something a decision is close to 
being imminent?
    Secretary Mnuchin. We are going to decide one way or 
another whether we can do that, so yes.
    Senator Moran. OK. Thank you very much. Thank you, Mr. 
Secretary. Thank you, Mr. Chairman.
    Secretary Mnuchin. Thank you.
    Chairman Crapo. Thank you. And you get a gold star, Senator 
Moran, for yielding back a minute or two.
    [Laughter.]
    Chairman Crapo. Our final Senator for questions is Senator 
Smith.
    Senator Smith. Thank you, Mr. Chair, and thank you, Ranking 
Member Brown. And thanks to both of you for being here today.
    Chair Powell, you have talked about how we will not be able 
to solve the economic crisis without solving the public health 
crisis, which I agree with. And, Secretary Mnuchin, you have 
said that we need to reopen the economy, and I quote, ``in a 
thoughtful way,'' which I also agree with. So it seems to me 
that a really important part of being thoughtful is to make 
sure that Americans have accurate information about what is 
going on. So I have no doubt that you will be surprised to hear 
that a lot of us were taken aback when, I do not know, a couple 
of days or so ago, we heard President Trump's son, Eric Trump, 
acting as a surrogate for his father, say this, he said: ``They 
think''--meaning they, the Democrats--``that they are taking 
away Donald Trump's greatest tool, which is to be able to go 
into an arena and fill it with 50,000 people every single time, 
right? So that they will, and you watch, they will milk it 
every single day between now and November 3. And guess what? 
After November 3, coronavirus will magically all of a sudden go 
away and disappear and everybody will be able to reopen.''
    So this is the kind of misinformation that concerns me 
greatly. Secretary Mnuchin, are you aware of any evidence that 
what Eric Trump said, that his assessment is accurate?
    Secretary Mnuchin. I did not see Eric's comments, nor do I 
think in this setting it is appropriate for me to comment on it 
one way or another.
    Senator Smith. Well, I do not think it is accurate, and I 
think it is exactly the kind of misinformation that is so 
damaging to and undermining of both our economic approaches and 
our policy approaches here.
    But let me ask you, Chairman Powell, even before the COVID-
19 crisis, many Minnesotans were struggling to find an 
affordable place to live. And last year, I spoke with hundreds 
and hundreds of Minnesotans and family community leaders about 
this challenge, housing developers as well, and they all told 
us that at every part of the housing continuum, from housing 
for homeless people and supportive housing, all the way up to 
workforce housing, that this is a significant problem and a 
significant affordability challenge. And so now we have this 
coronavirus challenge.
    So I along with many of my colleagues on this Committee 
have been pushing for support for housing, $11.5 billion for 
homeless assistance, $100 billion for rental assistance, and 
$75 billion to stabilize homeowners.
    Chair Powell, could you talk a little bit about the 
importance of the housing sector in our economy right now and 
what challenges you see ahead for us as we are living through 
this crisis? And I appreciate what you said. The most important 
policy objective should be to keep people in their homes and 
keep them paying the bills.
    Mr. Powell. These are longer-running problems which are, of 
course, under particular pressure right now. But as an example, 
a lot of the jobs are in big urban areas more and more. That is 
where the job creation is. And yet the cost of living in those 
places is higher and higher, very high, and often people who 
are in the service industries providing their services have to 
commute very long times to be able to afford to live in a 
place. So, you know, it is an issue that has been with us for a 
while. It is not one really that the Fed can affect much other 
than by affording, you know, fair lending laws and things like 
that. But we cannot really directly affect those, but they are 
important to our economy.
    Senator Smith. I realize that you do not want to comment 
specifically on the specific policy issues that we have 
confronting us here in Congress, but in general, do you see a 
risk to the housing market as the economy continues to take a 
downturn in the months ahead?
    Mr. Powell. Well, I think there are multiple risks. One is 
just to the extent forbearance does not do the job, you may 
have people losing their homes. Given that this is a natural 
disaster in a way, that is something that would be great to 
avoid. You also see the housing industry coming--I will not say 
to a halt, but under great pressure, activity being slowed, 
that is a lot of jobs right there. So I think, you know, really 
it comes down to sensibly, thoughtfully opening up the economy 
in a way that builds confidence and keeps people safe. I think 
that is really important that we do that well, and if we do, 
you know, these other things will take care of themselves over 
time.
    Senator Smith. This is an issue that I think we should 
continue to work on and talk about, the challenges that people 
will have if they do lose their home. The ripple effect of 
people not being able to pay their rent or their mortgage and 
then the impact that that has all the way up through the 
housing continuum I think is a grave concern. And if you do not 
have a safe place to live, then nothing else in your life 
works. I believe that this is something that is really 
important for us to address in the next package.
    Thank you very much, Mr. Chair.
    Chairman Crapo. Thank you, Senator Smith.
    And we have also been joined now by Senator Sinema, so she 
will be the last questioner. She will be with us on audio only, 
and thank you, Senator Sinema. If you finish in your 5 minutes, 
I may make it to the vote.
    Senator Sinema. Well, thank you, Mr. Chairman, and thank 
you to our witnesses for being here today.
    Every day Arizonans from every corner of my State are 
worried about their health and their future, and that is why my 
office has doubled our State team to better serve Arizonans 
during this difficult time. Our goal is to offer top-notch 
constituent services connecting Arizonans with resources and 
going the extra mile to ensure they get the assistance they 
need.
    I am glad that we are having an oversight hearing today 
because robust congressional oversight is critical to ensuring 
we know where the CARES Act money is going and how it is going 
to be spent. It is also vital to ensuring that Arizonans are 
not stuck in Government bureaucracy. I am focused on cutting 
through that red tape to help Arizonans.
    My first question is for Secretary Mnuchin. Let us start 
with the Economic Injury Disaster Loans. I sent you and 
Administrator Carranza a letter on April 17th outlining my 
concerns with how the Administration has run this program. I 
have not received a response. The CARES Act promises small 
businesses a $10,000 loan advance within 3 days of their 
application. I know Arizonans who went through this process. 
None of them got their loan advance within 3 days, and no one 
received the full $10,000.
    Why aren't they getting that full amount? And why aren't 
they getting it on time?
    Secretary Mnuchin. Well, first of all, let me just 
apologize that you have not received a response. I will look 
into that after this and get back to you.
    As it relates to the EIDL Program, again, that is within 
the SBA, but let me just comment that the SBA had significant 
systems issues getting the EIDL Program up and running. I 
thought the grants were doing much better than the loans, so I 
will follow up and look at that.
    On the loans they are rebuilding the entire system. I 
think, as you know, we have over 5 million loans to process. 
But we will follow up with you.
    Senator Sinema. As you know, the SBA internally changed the 
policy of EIDL to only issue a $1,000 loan advances per 
employee up to $10,000. The original plan was $10,000 per 
company. Who authorized the change? And why was it made?
    Secretary Mnuchin. I believe the SBA Administrator made 
that change, and I believe her thought on that was that there 
was limited money and tried to spread it out amongst as many 
companies as possible.
    Senator Sinema. And she did not think to herself let us go 
back and ask Congress to authorize more funding to pay for that 
which they appropriated and called for in the legislation?
    Secretary Mnuchin. Well, there was additional money in the 
second phase, and we appreciate that Congress reacted to that.
    Senator Sinema. OK, but, Secretary, my question is that the 
SBA made this internal change without getting authorization 
from Congress, and if they are saying they did it because they 
did not have enough money, we then gave more money, and they 
still have not used it to give that money to people as promised 
as the $10,000 in the original legislation.
    Secretary Mnuchin. As I said, I am more than happy to 
follow up with you. I am not involved in some of the direct 
specifics of that, so let me follow up with your office.
    Senator Sinema. I appreciate that, Secretary.
    The last thing I will say about the EIDL loans, my office 
is right now working on over 300 outstanding EIDL cases. Some 
of them are dating all the way back to early and mid-March. Can 
your team commit to working with mine to get these cases moved 
through quickly?
    Secretary Mnuchin. I commit we will work with the SBA to 
follow up. That is not acceptable, so we will follow up with 
the SBA with you.
    Senator Sinema. I appreciate that. I have some questions 
about the Paycheck Protection Program as well. Small business 
owners in Arizona are asking for guidance on how the loan 
forgiveness works, and the lack of guidance has made it 
difficult for small businesses to plan. We received some 
guidance last Friday, and there is more still to come.
    Could you tell me why it is taking so long to get guidance 
for small businesses on the loan forgiveness aspect of PPP?
    Secretary Mnuchin. Well, I would just comment I think you 
know this was a very complicated program that we set up in a 
short period of time. I thought that the guidance we put out 
dealt with all the issues. But if there are specific issues 
that you are hearing from, we will follow up with you and 
provide that clarity.
    Senator Sinema. I appreciate that. We would like to follow 
up specifically.
    As you know, the application to get your PPP loan was only 
one-page long, but the forgiveness application is 11 pages long 
and, according to my staff, requires a minimum of 3 hours to 
complete. This is a real problem for mom-and-pop shops in 
Arizona.
    What efforts can we offer to assist small businesses in 
filling out the complex form?
    Secretary Mnuchin. Well, I can assure you I spent a lot of 
time on the complexity of that. We tried to get it as short as 
we could under the requirements of the law. I hope it does not 
take 3 hours for small business. But, again, we tried to make 
it as short as possible.
    Senator Sinema. I appreciate that.
    Mr. Chairman, I see that my time has expired. I would like 
you to make it to the vote. I have many more questions. I will 
submit some of them in writing.
    Senator Sinema. Thank you so much, Mr. Chairman.
    Chairman Crapo. Thank you, Kyrsten. I really appreciate 
that.
    I understand Senator Brown wants to make a 60-second 
statement. You can do so.
    Senator Brown. I will do 60 seconds. Thank you, Mr. 
Chairman. Another successful hearing. Thank you, Chair Powell 
and Secretary Mnuchin.
    I wear on my lapel, as I have said before, a pin depicting 
a canary in a bird cage instead of the official Senate pin. You 
all know the story. The mine workers took the canary down in 
the mines to warn of poisonous gas. They did not have a union 
strong enough to protect them in those days or a Government 
that cared enough. That is why we had the New Deal with worker 
protections and public health.
    Now, a century later, it is starting to feel like we are 
back in the mines. Millions of American workers do not have a 
union to protect them. After decades of corporate attacks and 
based on the responses we have heard today and what we have 
heard especially from the President over the past few months, 
it seems that once again workers do not have a Government that 
cares enough to protect them. Look at how the Administration 
treats essential workers, women, especially African American 
and Latino workers, putting their lives on the line. Look at 
who they are willing to spend money on. This Administration 
tells us everything we need to know. That is why Congress needs 
to stand up for workers. That is why workers need unions, so we 
can fight back for economic security and safety protections and 
the dignity they deserve and for American values.
    So, Mr. Chairman, thank you for allowing me a last minute 
or so.
    Chairman Crapo. Well, thank you. And I also want to thank 
you, Senator Brown, for your cooperation and working with us to 
have this hearing and help it to work out. I appreciate the 
cooperative way in which we have been able to work on these 
hearings.
    I do disagree with the notion that our Secretary and our 
Chairman here are not working very hard to make sure that the 
support we have voted on gets out to those very people, those 
who have these lower-paying jobs, those who are in the service 
industry, the small businesses, the medium-size businesses, and 
those places that will be needed to stand up our economy as we 
have the opportunity to do so. So we may have a different point 
of view on that, but I do appreciate your support in helping me 
get this hearing set up and working.
    And to our witnesses, Secretary Mnuchin, Chairman Powell, I 
again appreciate your cooperation and work with me as we have 
put together this hearing. We are plowing new ground here in 
the Senate, as is happening across this Nation while we deal 
with COVID-19, and your cooperation in working to get us 
through this hearing and get your report to us is deeply 
appreciated.
    With that, I will say that for Senators who wish to submit 
questions for the record, those questions are due on Tuesday, 
May 26th, and I ask you, our witnesses, to respond to those 
questions as quickly as possible.
    Again, thank you each for participating today, and this 
hearing is adjourned.
    Secretary Mnuchin. Thank you very much to both of you.
    [Whereupon, at 12:32 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
    We are all becoming more familiar with remote hearings, but let me 
offer a few videoconferencing reminders.
    Once you start speaking, there will be a slight delay before you 
are displayed on 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.
    Because we have a hard stop at 12:15, all senators and witnesses 
need to be especially mindful of the five minute clock.
    You should all have one box on your screens labeled ``clock'' that 
will show how much time is remaining.
    At 30 seconds remaining, I will gently tap the gavel to remind 
senators their time has almost expired.
    To simplify the speaking order process, Senator Brown and I have 
again agreed to go by seniority.
    With that, today we welcome to this virtual hearing the honorable 
Steven T. Mnuchin, Secretary, Department of the Treasury; and The 
Honorable Jerome H. Powell, Chairman, Board of Governors of the Federal 
Reserve System.
    We will receive testimony from the Secretary of the Treasury and 
Chairman of the Federal Reserve, as required under Title IV of the 
CARES Act.
    Congress has appropriated nearly $3 trillion to protect, strengthen 
and support Americans, to fight the pandemic, and also to stabilize the 
infrastructure of our economic system.
    A large portion of this funding is authorized under Title IV of the 
CARES Act, which provides significant resources for loans, loan 
guarantees, and other investments from Treasury and the Federal 
Reserve's 13(3) emergency lending facilities and programs in support of 
eligible businesses, States, municipalities, and Tribes.
    Title IV of the CARES Act provided a $454 billion infusion into the 
Exchange Stabilization Fund to support the Federal Reserve's emergency 
lending facilities that facilitate liquidity in the marketplace and 
support eligible businesses, States, local governments, and Tribes.
    This unique lending authority, known as 13(3) authority, is 
authorized under section 13 of the Federal Reserve Act, and plays a 
critical role in stabilizing markets.
    Both prior to and after the enactment of the CARES Act, the Federal 
Reserve announced the establishment of or its intent to establish 
several emergency lending facilities to support financial markets and 
businesses, including some that are funded by the CARES Act.
    Last week, other members of this Committee and I had a robust 
discussion with Vice Chairman Quarles on these facilities and stressed 
the importance of getting facilities like the Main Street Lending 
Programs and the Municipal Liquidity Facility up and running quickly to 
provide a lifeline to struggling businesses, States and local 
governments.
    Again, I stress the importance of setting these facilities up 
quickly and allowing broad access.
    There was also a discussion about whether it is acceptable for the 
Treasury to take any losses on investments put into the special purpose 
vehicles that the Fed will lend to for various programs.
    The 13(3) facilities are a critical component of a strong economic 
recovery, which reinforces the need to have them quickly operational, 
broadly available and as flexible as possible.
    Title IV also contains robust oversight provisions--specifically 
the one that brought us here today, Section 4026.
    It is critical that each agency follow all reporting and oversight 
requirements in the CARES Act.
    Other steps are already being taken to ensure appropriate 
oversight.
    Last week, this Committee voted the Special Inspector General for 
Pandemic Recovery favorably out of committee, and yesterday, the 
Congressional Oversight Committee published its initial report on 
oversight of Title IV.
    The CARES Act is the biggest rescue package in the history of 
Congress and we need to make sure the dollars and program quickly find 
their mark.
    During this hearing, I look forward to hearing more about the 
status of Treasury loan programs, 13(3) emergency facilities, and the 
Paycheck Protection Program; steps the Fed and Treasury have taken, and 
will continue to take, to provide transparency into the loans and loan 
guarantees under the CARES Act; and how the unused funds from Title IV 
will be prioritized and leveraged to provide additional liquidity to 
the economy.
    While not part of Title IV of the CARES Act, SBA and Treasury have 
worked around the clock to ramp up the Paycheck Protection Program that 
has approved over 4.3 million loans to small businesses that amounts to 
about $513 billion.
    According to SBA, the overall loan size for the PPP is $118,000, 
and during the second round of PPP funding, the average loan size has 
been around $70,000.
    On April 28, Treasury and SBA announced that the SBA would review 
all PPP loans in excess of $2 million to make sure borrowers' self-
certification for the loans was appropriate.
    Last week, SBA and Treasury provided a safe harbor for loans under 
$2 million.
    Finally, on May 8, 2020, Commerce Committee Chairman Wicker and I 
sent a letter to Secretary Mnuchin on the Payroll Support Program (PSP) 
requesting a detailed report on the status of the program and on May 
12, Treasury announced new transparency measures with regards to the 
PSP.
    I encourage you to continue to work with the applicants and update 
the information as additional funds are disbursed.
    I commend each of you and your staff for the hard work and 
extraordinary actions you have taken to stabilize the economy and 
provide support to Americans during this trying time.
    Thank you for joining us today to share your agency's activities 
and plans in response to COVID-19.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    I'd again like to thank Chairman Crapo for following the best 
advice of health experts, and holding a virtual hearing to prevent the 
spread of coronavirus.
    I am still outraged by Leader Mitch McConnell's reckless decision 
to keep the Senate in session, putting Capitol Hill workers--including 
Capitol police officers, custodial staff, floor staff, and cafeteria 
workers--putting all workers at risk.
    Leader McConnell has forced workers to go against public health 
authorities' advice for three weeks now, and he still has no plan to 
get additional help to families and communities. The House passed a 
bill that incorporates many of our plans. The American people are 
rising to this challenge--and their leaders are failing them. Leader 
McConnell says he sees no urgency--his words, no urgency.
    Before we begin, I'd like to pause here for a moment to recognize 
all the workers who have lost their lives on the job during this 
pandemic.
    The coronavirus has been the great revealer. It's brought out the 
best in our communities--we remember the spirit of solidarity that 
created our social safety net during the New Deal, and inspired World 
War II victory gardens, and powered the Civil Rights movement. And 
today that spirit of solidarity is now revealing itself in hand-sewn 
masks, and fire escape applause for hospital workers, and video 
conference play-dates, as millions of individual Americans pull 
together to do their part to flatten the curve.
    But this pandemic is also laying bare how corporations that now 
claim their workers are ``essential,'' have for too long treated them 
as more of a cost to be minimized.
    Since the bailouts of the financial crisis, many of us have been 
concerned about how our country rewards Wall Street, but ignores the 
people who make our country work.
    Whenever we've asked why wages for these essential workers are 
stagnant, we're told we can't afford it--companies would have to raise 
prices if they paid people more. Never mind that CEOs were getting huge 
raises and Wall Street investors huge payouts. Never mind that low 
prices don't do you a lot of good if your wages stay low right along 
with them.
    Our economy has been paying the price for that--with a shrinking 
middle class, rising inequality, and lower economic growth.
    Now it's pretty clear: when millions of workers are laid off, or 
have their hours cut, or were making low wages to begin with and are 
now worried about their future, our economy grinds to a halt.
    In fact, the only thing keeping our society running in the middle 
of this crisis is American workers--those who stock our shelves and 
deliver our packages and fill our prescriptions and care for our loved 
ones.
    A grocery store worker in Ohio told me recently, ``I don't feel 
safe at work and they don't pay me much. I don't feel essential--I feel 
expendable.''
    We are asking people to show up to work and risk their health, and 
their families' safety--perhaps finally realizing that the words of Dr. 
King ring true--that ``One day our society will come to respect the 
sanitation worker.for the person who picks up our garbage, in the final 
analysis, is as significant as the physician, for if he doesn't do his 
job, diseases are rampant. All labor has dignity.''
    ALL labor has dignity.
    You might think that at a time when we're demanding more from our 
essential workers than ever before, that people who punch a clock or 
swipe a badge, people who take care of our families and our elderly--
mostly women, often black and brown workers--you might think they'd all 
be getting a huge raise.
    Our economy is supposed to reward people whose talents are in high 
demand. That's what we're all taught and that's what the CEOs tell us, 
right?
    But that's not happening. Workers are getting left behind, again.
    As essential workers go home to their families after a long, 
stressful day, they're wondering how they're going to pay the rent, or 
how they're going to afford another week of groceries. Aand they wonder 
whether they're going to infect their families.
    And those are the ones that are working--how about the 35 million 
Americans who have been laid off from their jobs because of this public 
health crisis?
    When we passed the CARES Act, we tried to address this. We tried to 
make sure that the trillions of dollars in spending wouldn't just go to 
Wall Street like it always does. We wanted to make sure that the 
Federal Reserve and the Treasury got this money into workers' pockets.
    We certainly didn't want to see it go to oil and gas companies, 
whose activities pose an existential threat to essential workers and 
our whole economy.
    Chairman Powell--I appreciate your recent comments about how 
Congress needs to do more to put money directly in workers' pockets--I 
agree.
    If Congress does not act now to put money in the hands of the 
people who actually power our economy--in workers, their families, and 
Main Street businesses in struggling communities--we risk making the 
economic crisis worse.
    Leader McConnell needs to let the Senate take up the House bill 
immediately.
    Congress also has an important responsibility to make sure the $500 
billion we've already approved for the Fed and Treasury is actually 
getting to workers. And from what we know so far, it does not appear 
that this Administration or the Federal Reserve are making workers 
their priority.
    Today I look forward to hearing from both of you, Mr. Secretary and 
Chair Powell, not about what you're doing for big banks or big 
corporations and how you expect that money to trickle down, but how 
you're making sure the money and authority Congress gave you actually 
help the people who make this country work.
    I want to hear how it's going to be different this time.
    I want you to explain what you will do to transform our economy so 
that it works for everyone--not just the wealthy and powerful.
    I want to hear about your plans to make our economy work for 
essential workers, and how to safely get those who have lost their jobs 
back to work.
    Thank you, Mr. Chairman.
                                 ______
                                 
                PREPARED STATEMENT OF STEVEN T. MNUCHIN
                 Secretary, Department of the Treasury
                              May 19, 2020
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for this opportunity to highlight how the Department of the 
Treasury and the Federal Reserve are working together to provide 
liquidity to the financial system. Our programs support the flow of 
much-needed credit to American workers, families, businesses, States, 
and municipalities.
    I want to begin by acknowledging the unprecedented challenges the 
American people are experiencing due to the COVID-19 pandemic. This 
disease is impacting families and communities across the Nation. 
Through no fault of their own, the American people are also enduring 
economic challenges. I am inspired by our Nation's medical 
professionals and first responders on the front lines taking care of 
their fellow citizens. Thanks to their efforts and their unwavering 
commitment to their communities, I am confident that our Nation will 
emerge from the pandemic stronger than ever before.
    President Trump and the entire Administration are committed to 
providing necessary relief to help people get through this time. The 
Treasury Department is working hard to implement the CARES Act. We 
appreciate Congress working with us to enact this statute, which is the 
single largest economic relief effort in the history of our country. We 
also appreciate the feedback we have received from Members of Congress 
on both sides of the aisle as we implement a number of critical 
programs established by the CARES Act.
CARES Act Programs
    We have worked closely with the Small Business Administration on 
the Paycheck Protection Program (PPP) to ensure the processing of more 
than 4.2 million loans for over $530 billion to keep tens of millions 
of hardworking Americans on the payroll. We are proud that nearly 400 
Community Development Financial Institutions and Minority Depository 
Institutions, and many more small and nonbank lenders, are 
participating in this program.
    We have issued more than 140 million Economic Impact Payments for 
over $240 billion to provide direct relief to millions of Americans. 
The typical family of four received $3,400.
    We have distributed almost $150 billion to States, local, and 
tribal governments through the Coronavirus Relief Fund for essential 
services. We have also approved nearly $25 billion in payroll support 
to the airline industry to protect this critical sector of our economy.
Exchange Stabilization Fund
    Turning to a central focus of this hearing, the CARES Act also 
provided authority for $454 billion in support for Federal Reserve 
lending facilities to provide liquidity to the financial system.
    Since March 17, I have approved the following facilities:

    The Commercial Paper Funding Facility

    Primary Dealer Credit Facility

    Money Market Mutual Fund Liquidity Facility

    Term Asset-Backed Securities Loan Facility

    Primary Market Corporate Credit Facility

    Secondary Market Corporate Credit Facility

    Main Street Business Lending Program

    Municipal Liquidity Facility, and the

    PPP Lending Facility.

    We have committed up to $195 billion in credit support under the 
CARES Act. We have the remaining $259 billion to create or expand 
programs as needed, as we continue to monitor a variety of economic 
sectors closely.
Economic Environment
    We are sympathetic to hardworking Americans and businesses enduring 
tremendous challenges due to the COVID-19 pandemic. We have had to take 
unprecedented steps to shut down significant parts of the economy in 
the interest of public health. As a result, in the second quarter of 
this year, we are continuing to see large unemployment and other 
negative indicators. It is important to realize that the large numbers 
represent real people. This is why it is so important to begin bringing 
people back to work in a safe way.
    As we listen to medical experts, we are optimistic about the 
progress being made on vaccines, antiviral therapies, and testing. 
Working closely with governors, we are beginning to open the economy in 
a way that minimizes risks to workers and customers. We expect economic 
conditions to improve in the third and fourth quarters.
Conclusion
    Under the leadership of President Trump, I am proud to have worked 
with all of you, on a bipartisan basis, to get relief into the hands of 
hardworking Americans and businesses as quickly as possible. While 
these are unprecedented and difficult times, these programs are making 
a positive impact on people. Together we will destroy the COVID-19 
virus, and our country will emerge from the pandemic stronger than 
ever.
    Thank you for the opportunity to discuss our efforts today, and I 
look forward to your questions.
                                 ______
                                 
                 PREPARED STATEMENT OF JEROME H. POWELL
       Chairman, Board of Governors of the Federal Reserve System
                              May 19, 2020
    Chairman Crapo, Ranking Member Brown, and other Members of the 
Committee, thank you for the opportunity to discuss the extraordinary 
steps the Federal Reserve has taken to address the challenges we are 
facing.
    I would like to begin by acknowledging the tragic loss and 
tremendous hardship that people are experiencing both here in the 
United States and around the world. The coronavirus outbreak is, first 
and foremost, a public health crisis, with the most important responses 
coming from those on the front lines in hospitals, emergency services, 
and care facilities. On behalf of the Federal Reserve, let me express 
our sincere gratitude to those individuals who put themselves at risk 
day after day in service to others and to our Nation.
    The forceful measures that we, as a country, are taking to control 
the spread of the virus have substantially limited many kinds of 
economic activity. Many businesses remain closed, people have been 
advised to stay home, and basic social interactions have been greatly 
curtailed. People have put their lives and livelihoods on hold at 
significant economic and personal cost. All of us are affected, but the 
burdens are falling most heavily on those least able to carry them.
    It is worth remembering that the measures taken to contain the 
virus represent an investment in our individual and collective health. 
As a society, we should do everything we can to provide relief to those 
who are suffering for the public good.
    Available economic data for the current quarter show a sharp drop 
in output and an equally sharp rise in unemployment. By these measures 
and many others, the scope and speed of this downturn are without 
modern precedent and are significantly worse than any recession since 
World War II. Since the pandemic arrived in force just two months ago, 
more than 20 million people have lost their jobs, reversing nearly 10 
years of job gains. This precipitous drop in economic activity has 
caused a level of pain that is hard to capture in words, as lives are 
upended amid great uncertainty about the future. In addition to the 
economic disruptions, the virus has created tremendous strains in some 
essential financial markets and impaired the flow of credit in the 
economy.
    The Federal Reserve's response to this extraordinary period has 
been guided by our mandate to promote maximum employment and stable 
prices for the American people, along with our responsibilities to 
promote stability of the financial system. We are committed to using 
our full range of tools to support the economy in this challenging time 
even as we recognize that these actions are only a part of a broader 
public-sector response. Congress's passage of the Coronavirus Aid, 
Relief, and Economic Security Act (CARES Act) was critical in enabling 
the Federal Reserve and the Treasury Department to establish many of 
the lending programs that I discuss below.
    In discussing the actions we have taken, I will begin with monetary 
policy. In March, we lowered our policy interest rate to near zero, and 
we expect to maintain interest rates at this level until we are 
confident that the economy has weathered recent events and is on track 
to achieve our maximum-employment and price-stability goals.
    In addition to monetary policy, we took forceful measures in four 
areas: open market operations to restore market functioning; actions to 
improve liquidity conditions in short-term funding markets; programs in 
coordination with the Treasury Department to facilitate more directly 
the flow of credit to households, businesses, and State and local 
governments; and measures to allow and encourage banks to use their 
substantial capital and liquidity levels built up over the past decade 
to support the economy during this difficult time.
    Let me now turn to our open market operations and the circumstances 
that necessitated them. As tensions and uncertainty rose in mid-March, 
investors moved rapidly toward cash and shorter-term Government 
securities, and the markets for Treasury securities and agency 
mortgage-backed securities, or MBS, started to experience strains. 
These markets are critical to the overall functioning of the financial 
system and to the transmission of monetary policy to the broader 
economy. In response, the Federal Open Market Committee undertook 
purchases of Treasury securities and agency MBS in the amounts needed 
to support smooth market functioning. With these purchases, market 
conditions improved substantially, and thus we have slowed our pace of 
purchases. While the primary purpose of these open market operations is 
to preserve smooth market functioning and effective policy 
transmission, the purchases will also foster more accommodative 
financial conditions.
    As a more adverse outlook for the economy associated with COVID-19 
took hold, investors exhibited greater risk aversion and pulled away 
from longer-term and riskier assets as well as from some money market 
mutual funds. To help stabilize short-term funding markets, we 
lengthened the term and lowered the rate on discount window loans to 
depository institutions. The Board also established, with the approval 
of the Treasury Department, the Primary Dealer Credit Facility (PDCF) 
under our emergency lending authority in section 13(3) of the Federal 
Reserve Act. Under the PDCF, the Federal Reserve provides loans against 
good collateral to primary dealers that are critical intermediaries in 
short-term funding markets. Similar to the large-scale purchases of 
Treasury securities and agency MBS I mentioned earlier, this facility 
helps restore normal market functioning.
    In addition, under section 13(3) and together with the Treasury 
Department, we set up the Commercial Paper Funding Facility, or CPFF, 
and the Money Market Mutual Fund Liquidity Facility, or MMLF. Both of 
these facilities have equity provided by the Treasury Department to 
protect the Federal Reserve from losses. Indicators of market 
functioning in commercial paper and other short-term funding markets 
improved substantially and rapid outflows from prime and tax-exempt 
money market funds stopped after the announcement and implementation of 
these facilities.
    In mid-March, offshore U.S. dollar funding markets also came under 
stress. In response, the Federal Reserve and several other central 
banks announced the expansion and enhancement of dollar liquidity swap 
lines. In addition, the Federal Reserve introduced a new temporary 
repurchase agreement facility for foreign monetary authorities. These 
actions helped stabilize global U.S. dollar funding markets, and they 
continue to support the smooth functioning of U.S. Treasury and other 
financial markets as well as U.S. economic conditions.
    As it became clear the pandemic would significantly disrupt 
economies across the world, markets for longer-term debt also faced 
strains. The cost of borrowing rose sharply for those issuing corporate 
bonds, municipal debt, and asset-backed securities (ABS) backed by 
consumer and small business loans. Effectively, creditworthy 
households, businesses, and State and local governments were unable to 
borrow at reasonable prices, which would have further reduced economic 
activity. In addition, small and medium-sized businesses that 
traditionally rely on bank lending faced large increases in their 
funding needs as they struggled with possible closure or substantially 
curtailed revenues.
    To support the longer-term, market-based financing that is critical 
to economic activity, the Federal Reserve took a number of bold steps. 
These steps were designed to ensure that credit would flow to borrowers 
and thus support economic activity. With credit protection provided by 
the Treasury Department, on March 23 the Board announced that it would 
support consumer and small business lending by establishing the Term 
Asset-Backed Securities Loan Facility (TALF). The TALF will lend 
against ABS backed by newly issued auto loans, credit card loans, and 
other consumer and small business loans. In turn, these loans will 
support consumers seeking to obtain these important types of credit.
    The Federal Reserve also took action with the Treasury Department 
under section 13(3) to support the credit needs of large employers 
through the Primary Market Corporate Credit Facility and the Secondary 
Market Corporate Credit Facility. These facilities primarily purchase 
bonds issued by U.S. companies that were investment grade on March 22, 
2020. By purchasing these bonds, the Federal Reserve is able to lower 
the borrowing costs for investment-grade companies and thus facilitate 
economic activity.
    The Federal Reserve is also preparing to launch the Main Street 
Lending Program, which is designed to provide loans to small and 
medium-sized businesses that were in good financial standing before the 
pandemic. Importantly, with these and other facilities that the Federal 
Reserve has not employed before, public input has been crucial in their 
development. For example, in response to comments received, we lowered 
the minimum loan size and raised the maximum loan size across the three 
lending facilities within the program; in addition, we expanded the 
size of firms allowed to borrow under the program to companies with up 
to 15,000 employees. These changes should help the program meet the 
needs of a wider range of employers that may need bridge financing to 
support their operations and the economic recovery. We will continue to 
adjust facilities as we learn more.
    To bolster the effectiveness of the Small Business Administration's 
Paycheck Protection Program (PPP), the Federal Reserve is supplying 
liquidity to lenders backed by their PPP loans to small businesses. And 
to help State and local governments better manage cash flow pressures 
in order to continue to serve households and businesses in their 
communities, the Federal Reserve, together with the Treasury 
Department, established the Municipal Liquidity Facility under section 
13(3) authority to purchase short-term debt directly from U.S. States, 
counties, cities, and certain multistate entities. The two corporate 
credit facilities, the Main Street Lending Program, and the Municipal 
Liquidity Facility all have equity provided by the Treasury Department 
to protect the Federal Reserve from losses. The passage of the CARES 
Act by Congress was critical in enabling the Federal Reserve and the 
Treasury Department to establish these real economy emergency lending 
programs that have the capacity to make more than $2.6 trillion in 
loans.
    The tools that the Federal Reserve is using under its 13(3) 
authority are for times of emergency, such as the ones we have been 
living through. When economic and financial conditions improve, we will 
put these tools back in the toolbox.
    The final area where we took steps was in bank regulation. The 
Board made several adjustments, many temporary, to encourage banks to 
use their positions of strength to support households and businesses. 
Unlike the 2008 financial crisis, banks entered this period with 
substantial capital and liquidity buffers and improved risk-management 
and operational resiliency. As a result, they have been well positioned 
to cushion the financial shocks we are seeing. In contrast to the 2008 
crisis when banks pulled back from lending and amplified the economic 
shock, in this instance they have greatly expanded loans to customers. 
Federal Reserve Board Vice Chair for Supervision Randal Quarles spoke 
to you about these topics last week.
    The Federal Reserve has been entrusted with an important mission, 
and we have taken unprecedented steps in very rapid fashion over the 
past few months. In doing so, we embrace our responsibility to the 
American people to be as transparent as possible. We are deeply 
committed to transparency, and recognize that the need for transparency 
is heightened when we are called upon to use our emergency powers. This 
is particularly the case when Congress appropriates taxpayer funds to 
back lending programs that the Fed administers. In connection with the 
CARES Act facilities--including the two corporate credit facilities, 
the Main Street Lending Program, the Municipal Liquidity Facility, and 
the TALF--we will be disclosing, on a monthly basis, names and details 
of participants in each facility; amounts borrowed and interest rate 
charged; and overall costs, revenues, and fees for each facility.
    Thank you, I'd be happy to take your questions.
        RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                     FROM STEVEN T. MNUCHIN

Q.1. The Administration has identified a range of needs among 
companies in the U.S. defense industrial base for urgent 
financial assistance. Section 4003(b)(3) of the CARES Act made 
available $17 billion specifically to address the needs of 
businesses critical to maintaining national security. Some of 
businesses identified by the Administration may also be 
eligible to receive forgivable loans under the Paycheck 
Protection Program. In the CARES Act, Congress also 
appropriated funding for activities under the Defense 
Production Act to bolster the domestic production of urgently 
needed medical supplies and equipment.
    What steps are you taking, in coordination with Defense 
Secretary Esper, to ensure that defense industrial base 
companies in need of financial assistance receive aid first out 
of the national security or PPP funding Congress provided, 
rather than out of the DPA funding Congress provided primarily 
to bolster additional production of medical supplies and 
equipment?

A.1. Under section 4003(b)(3) of the Coronavirus Aid, Relief, 
and Economic Security (CARES) Act, ``businesses critical to 
maintaining national security'' may be eligible for a loan from 
Treasury, subject to certain conditions and restrictions set 
forth in the statute. Treasury consulted with the Department of 
Defense, as well as the Office of the Director of National 
Intelligence, regarding the implementation of this statutory 
eligibility requirement. Based on input received in that 
consultation, Treasury issued guidance that a business is 
eligible for a loan if (1) it is performing under a ``DX''-
priority rated contract or order under the Defense Priorities 
and Allocations System regulations (15 CFR part 700); (2) it is 
operating under a valid top-secret facility security clearance 
under the National Industrial Security Program regulations (32 
CFR part 2004); or (3) based on a recommendation and 
certification by the Secretary of Defense or the Director of 
National Intelligence that the applicant business is critical 
to maintaining national security, the Secretary of the Treasury 
determines that the applicant business is eligible. Treasury 
has been working diligently to review the applications 
submitted by all companies that meet these criteria.
    With respect to the Paycheck Protection Program (PPP), 
Treasury and the Small Business Administration (SBA) have 
worked closely with Congress, lenders, and other stakeholders 
to ensure that as many workers and small businesses as possible 
can readily participate in the opportunities afforded by this 
program. Treasury has posted to its website a series of 
documents, including interim final rules that implement the 
PPP, a set of frequently asked questions, fact sheets, and 
other documents to address specific lender and borrower 
questions about eligibility and the application process, among 
other topics.

Q.2. How many nondepository CDFIs that were not SBA-approved 
7(a) lenders prior to the CARES Act have been approved to 
participate in PPP? Of these, how many have participated in 
PPP? For each nondepository CDFI lender that was not a 7(a) 
lender prior to the CARES Act that has been approved to 
participate in PPP, please provide the amount of business loans 
or other commercial financial receivables the CDFI originated, 
maintained, and serviced during a consecutive 12 month period 
in the past 36 months.

A.2. Treasury and SBA have undertaken extensive and ongoing 
efforts to encourage lending to underserved and rural 
borrowers. These efforts have included recruiting lenders that 
operate in underserved communities to participate in PPP and 
facilitating their approval of PPP loans, as well as educating 
underserved borrowers about the opportunities that exist for 
them through PPP. Guidance was issued to all lenders asking 
them to redouble their efforts to assist eligible borrowers in 
underserved and disadvantaged communities. This was done to 
ensure that individuals, businesses, and other entities in 
underserved and rural markets, including veterans and members 
of the military community, small business concerns owned and 
controlled by socially and economically disadvantaged 
individuals, women, and businesses in operation for less than 
two years, all benefited from PPP.
    Treasury and SBA have worked closely with Congress, 
regional and community banks, fintech lenders, Community 
Development Financial Institutions (CDFIs), Minority Depository 
Institutions (MDIs), the Department of Agriculture, and other 
stakeholders to ensure that as many workers and small 
businesses as possible can readily participate in the 
opportunities afforded by this program, with particular focus 
on underserved borrowers, including minorities, women, and 
rural entrepreneurs. Treasury and SBA extensively recruited 
lending institutions that typically operate in underserved 
communities to participate as PPP lenders. An important focus 
of our efforts to serve underserved communities has been to 
harness the role of CDFIs and MDIs. Hundreds of CDFIs were 
contacted and advised of their eligibility to participate in 
the PPP. As of August 8, 2020, when the PPP closed to new loan 
applications, 432 CDFIs and MDIs had participated and provided 
221,000 loans totaling more than $16.4 billion (308 CDFIs 
provided over 114,000 loans totaling more than $7.5 billion).

Q.3. Are Treasury or the Federal Reserve requiring the 
companies, including the banks' customers which use loan 
programs to report payroll information that will allow Congress 
to assess whether funds are being used to keep workers employed 
and paid? If not, how do you intend to assess whether funds are 
being used to keep workers employed and paid?

A.3. Main Street Lending Program borrowers undertake to make 
commercially reasonable efforts to retain employees during the 
term of the Main Street loans. Specifically, borrowers should 
undertake good-faith efforts to maintain payroll and retain 
employees, in light of their capacities, the economic 
environment, available resources, and need for labor. Main 
Street does not require specific recordkeeping or reporting 
regarding employment.

Q.4. Highly leveraged energy sector companies were already 
facing downgrades prior to the coronavirus outbreak, yet you 
recently made revisions to lending programs that will allow 
many of these companies to receive bailouts. Why is it 
appropriate to provide funds to prop up businesses that were 
failing regardless of the impacts of the coronavirus outbreak? 
In your role as Chair of the Financial Stability Oversight 
Council, did you consider the ramifications of further 
subsidizing an industry that contributes to climate change 
given the likelihood that the effects of climate change will 
lead to more volatile and less stable financial markets? If so, 
please provide your analysis. The Administration opposes the 
spending package recently passed by the House. Why does it make 
sense to spend billions propping up failing companies that put 
our economy at risk but not to spend money on workers that need 
to feed their families and pay rent?

A.4. In April, at the direction of the President, Secretary 
Mnuchin and Energy Secretary Brouillette began working together 
to consider ways in which to support the oil and gas sector and 
the many thousands of hardworking Americans it employs. 
Although the U.S. energy industry is of critical and strategic 
importance to the U.S. economy, and U.S. energy independence is 
a key policy priority of the Administration, Secretary Mnuchin 
was clear in stating that any such support must not be a 
``bailout'' and-unless specifically directed otherwise by 
Congress-should be available under terms that are consistent 
with the CARES Act and broadly applicable to all businesses and 
industries across the U.S. economy.
    The changes made to the Main Street Lending Program (Main 
Street) were made in response to over 3,500 comments received 
from the public representing a diversity of stakeholders. On 
April 30, 2020, in response to concerns from the public 
regarding the breadth of availability of Main Street loans for 
small and medium-sized businesses, the Federal Reserve amended 
the program's initial terms to expand the available loan 
options as well as the pool of businesses eligible to borrow. 
The changes to the Main Street were designed to allow an even 
wider range of American companies and industries to access the 
program in order to help support their workers and operations, 
without favoring any particular sectors.

Q.5. Over the past several decades, the number of small banks 
in the United States has decreased, while larger banks continue 
to increase in number and size. Recent laws and regulations 
have made it easier for big banks to buy smaller banks and out 
compete the remaining banks in the local community. This makes 
the disparity between small banks and large banks much more 
pronounced, and also has the effect of reducing the number of 
communities that have access to a bank. We have seen this 
disparity play out in Treasury and SBA's rollout of the PPP 
program. How is the Treasury Department addressing the 
distribution of PPP loans based on the location and size of 
participating lenders? What is Treasury doing to ensure that 
small lenders in rural and low- and moderate-income are able to 
issue PPP loans in their communities on an equal footing with 
larger banks?

A.5. Treasury and SBA have posted information about the size of 
lenders in the PPP program and the number and volume of loans 
they have made. As of August 8, 2020, when the program closed 
to new loan applications, lenders with more than $50 billion in 
assets were responsible for 36 percent of PPP lending amount, 
lenders with between $10 billion and $50 billion in assets were 
responsible for 19 percent of PPP lending amount, and lenders 
with less than $10 billion in assets were responsible for 45 
percent of PPP amount. No single lender has comprised more than 
4.4 percent.
    Treasury and SBA have undertaken extensive and ongoing 
efforts to encourage lending to underserved and rural 
borrowers. These efforts have included recruiting lenders that 
operate in underserved communities to participate in PPP and 
facilitating their approval of PPP loans, as well as educating 
underserved borrowers about the opportunities that exist for 
them through PPP. Guidance was issued to all lenders asking 
them to redouble their efforts to assist eligible borrowers in 
underserved and disadvantaged communities. This was done to 
ensure that individuals, businesses, and other entities in 
underserved and rural markets, including veterans and members 
of the military community, small business concerns owned and 
controlled by socially and economically disadvantaged 
individuals, women, and businesses in operation for less than 
two years, all benefited from PPP.
    Treasury and SBA have worked closely with Congress, 
regional and community banks, fintech lenders, CDFIs, MDIs, the 
Department of Agriculture, and other stakeholders to ensure 
that as many workers and small businesses as possible can 
readily participate in the opportunities afforded by this 
program, with particular focus on underserved borrowers, 
including minorities, women, and rural entrepreneurs. Treasury 
and SBA extensively recruited lending institutions that 
typically operate in underserved communities to participate as 
PPP lenders. An important focus of our efforts to serve 
underserved communities has been to harness the role of CDFIs 
and MDIs. Hundreds of CDFIs were contacted and advised of their 
eligibility to participate in the PPP. As of August 8, 2020, 
when the PPP closed to new loan applications, 432 CDFIs and 
MDIs had participated and provided 221,000 loans totaling more 
than $16.4 billion. The program has resulted in $106 billion 
provided to businesses in Historically Underutilized Business 
Zones (HUBZones), accounting for more than 20 percent of all 
PPP funding. Data also show that the loans have been broadly 
distributed and made across diverse areas of the economy, with 
27 percent of the funds going to low- and moderate-income 
communities, which is in proportion to their percentage of the 
population.

Q.6. Please provide the following data related to the Paycheck 
Protection Program:
    The name of each lender participating in PPP and the number 
and dollar amount of loans it made under the PPP, including a 
breakout of loans by borrower State, borrower ZIP code, 
industry, loan size, and, as available, borrower demographic 
information.
    The total amount of lender compensation fees paid to each 
PPP lender.
    The total amount each lender paid in broker fees.

A.6. Treasury and SBA are committed to implementing the CARES 
Act with transparency and accountability. Information regarding 
approved PPP loans and program participation is provided on our 
websites, including data to help inform your and the public's 
understanding of borrower participation, such as the number and 
dollar amount of loans, number of loans by amount, distribution 
by lender size and type, list of top lenders, average loan 
size, and loan distribution across industries and States.
    Additionally, SBA has made additional data regarding PPP 
loans publicly available in a manner that balances the 
interests of transparency with protections for small 
businesses, sole proprietors, and independent contractors. SBA 
disclosed the business names, addresses, NAICS codes, zip 
codes, business types, demographic data, jobs supported, and 
loan amount ranges as follows: $150,000-350,000; $350,000-1 
million; $1-2 million; $2-5 million; and $5-10 million. These 
categories account for nearly 75 percent of the loan dollars 
approved. For loans below $150,000, SBA disclosed the specific 
loan amounts along with NAICS codes, zip codes, business types, 
demographic data, and jobs supported, but no personally 
identifiable borrower information.
    This approach to public disclosure will allow Americans to 
see how their tax dollars are being spent while ensuring that 
America's entrepreneurs and job creators are able to compete 
fairly as our economy safely reopens. Unlike other SBA loans, 
PPP loan amounts are calculated based on payroll data, which 
employers typically treat as commercially sensitive or 
proprietary. In general, a borrower's specific PPP loan amount 
will reveal the borrower's nonpublic payroll information-
including the personal income of independent contractors and 
sole proprietors that received PPP loans.
    In addition to these public disclosures, SBA worked with 
congressional committees and the Government Accountability 
Office to provide full access to all PPP loan-level 
information-including, but not limited to, all borrower names 
and loan amounts-in a manner that afforded appropriate 
confidential treatment for nonpublic personally identifiable 
and commercially sensitive business information.
    We respectfully refer you to SBA for additional information 
on the fees paid to lenders.

Q.7. The CARES Act authorized the United States Postal Service 
to borrow up to $10 billion from the Treasury to cover 
operating expenses at terms mutually agreed upon by the 
Treasury and the USPS. Please provide an update on the 
negotiations with the USPS on the status of the loan's 
disbursement. Will you commit to providing the loan to USPS 
without imposing any unrelated conditions requiring changes to 
USPS postal management or operations?

A.7. On July 28, 2020, Treasury and the USPS agreed on terms 
regarding the additional $10 billion in lending authority 
included in the CARES Act. As mandated in the CARES Act, the 
USPS may only use such borrowed funds for operating expenses. 
No conditions requiring changes to USPS postal management or 
operations were included. Additionally, this term sheet has 
been provided to the House Oversight Committee and publicly 
released.

Q.8. As you know the CARES Act provided both loans and payroll 
support funding to air carriers. Both the loans and payroll 
support funding required air carriers to meet certain 
conditions. Is there any air carrier that you believe is not in 
compliance with the terms and conditions of the CARES Act?

A.8. The Department of the Treasury expects all participants in 
the Payroll Support Program (PSP) to comply with the 
requirements of the CARES Act, which are also incorporated into 
the terms of each carrier's Payroll Support Program Agreement. 
Treasury has posted program guidance on its website, including 
a form of Payroll Support Program Agreement setting forth 
statutory requirements and other terms under which payroll 
support is provided. \1\ As with each of the CARES Act programs 
Treasury is implementing, we will continue to work to ensure 
that the PSP is efficient and effective. To that end, 
Treasury's agreement with each recipient of payroll support or 
a Treasury loan requires the company to comply with the 
requirements under the CARES Act and to provide reporting to 
enable Treasury to monitor compliance. When Treasury identifies 
a participant in these programs that is not complying with its 
obligations under the CARES Act, we will take appropriate 
action.
---------------------------------------------------------------------------
     \1\ See https://home.treasury.gov/policy-issues/cares/preserving-
jobs-for-american-industry.

Q.9. I have heard of instances where pilots and flight 
attendants have been downgraded in hours or position and 
status, and therefore pay, as a result of a change in the air 
craft. These instances include scenarios where flight 
attendants or pilots, for example, are moved off of 
international flights or, in the case of pilots, moved from 
captain to first officer because they were assigned to a 
narrow-body aircraft instead of a wide-body international 
aircraft. Are reductions in pay due to a downgrade in aircraft 
---------------------------------------------------------------------------
violations of the CARES Act?

A.9. Treasury incorporated the requirements of the CARES Act 
into a PSP agreement that must be executed by each PSP 
recipient and Treasury. Each PSP agreement reflects the 
requirements in section 4114(a) of the CARES Act, which 
prohibits recipients from ``conducting involuntary furloughs or 
reducing pay rates and benefits until September 30, 2020.'' 
Treasury has also imposed reporting requirements to enable it 
to monitor PSP recipients' compliance with the PSP agreements, 
and each recipient is required to provide quarterly 
certifications that it is in compliance with the terms and 
conditions of the agreement. The agreement also makes clear 
that PSP funds must be used exclusively to continue paying 
employee salaries, wages, and benefits-the funds may not be 
used for any other purpose.

Q.10. The President recently stated he supports ``looking 
into'' banks committed to no longer investing in oil and gas 
drilling in the Arctic. Has the President discussed this with 
you or someone at your agency? Have you or anyone at your 
agency started any investigation, or initiated any proceeding 
to ``look into'' banks which have committed to not investing in 
Arctic oil and gas development?

A.10. Treasury has not initiated any investigation or 
proceeding with respect to this issue.

Q.11. Have you limited funds appropriated by Congress through 
the CARES Act, or any other law, to banks that have committed 
to stop financing Arctic oil and gas development?

A.11. No, Treasury has administered the programs Congress 
provided for under the CARES Act in a manner consistent with 
the text of the statute.

Q.12. Have you been directed by anyone, up to and including the 
President, to use the authorities and resources at your 
disposal to tip the scales in any way regarding banks or other 
investors with commitments to not finance new development in 
the Arctic?

A.12. Treasury has not taken any action with respect to a bank 
or other investor with respect to this issue.

Q.13. To what extent has Treasury studied the degree to which 
State and local revenue needs have been met by the Coronavirus 
Relief Fund in the CARES Act? How great is the unmet need among 
State and local governments and how does the Administration 
intend to help meet it? Please provide any Treasury analyses on 
State and local revenue.

A.13. Treasury endeavored to establish maximum flexibility in 
developing guidance for the Coronavirus Relief Fund; however, 
the CARES Act does not allow the use of CRF funds to supplement 
lost revenue.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                     FROM STEVEN T. MNUCHIN

Q.1. Many in Congress have expressed concern about the impact 
of job loss and unemployment upon low-income workers, and the 
Federal Reserve's Report of the Well Being of US Households in 
2019 found that 39 percent of Americans with a household income 
of less than $40,000 had seen at least one job loss in March. 
However, the report also stated that most workers expected 
their job losses to be temporary, with nine in 10 people who 
were furloughed or who had lost a job saying that their 
employer indicated that they would return to their job at some 
point.
    As you stated in the hearing, ``where people are unemployed 
for long periods of time, that can permanently weigh on both 
their careers and their ability to go back to work, and also 
weigh on the economy for years.'' While unemployment benefits 
are an important source of needed liquidity for displaced 
workers and can smooth consumption, having workers continue to 
be unemployed for longer than necessary may be harming our 
ability to quickly recover and restore long-term income 
stability. A recent University of Chicago working paper found 
that 68 percent of unemployed workers who are eligible for UI 
will under the CARES Act receive benefits which exceed lost 
earnings, and that the median wage replacement rate under the 
CARES Act is 134 percent of prior wages.
    How would you expect long-term (beyond July 31st, 2020) 
wage replacement rates above 100 percent to impact efficient 
labor reallocation and an eventual economic recovery?
    Would you expect a targeted proportional system of 
unemployment benefits that caps wage replacement rates at 100 
percent to sufficiently smooth consumption for displaced 
workers?

A.1. Economists believe that in most cases, increased benefit 
generosity leads to reduced likelihood of unemployed workers 
looking for and finding new work. There is not much evidence 
that enhanced UI benefits deterred job search early in the 
recession, as labor demand problems clearly dominated labor 
supply problems. However, since the spring, the economy has 
created over 10.6 million jobs in as little as four months, and 
there is now no question that labor demand has come roaring 
back. Thus, if unemployment insurance benefits were continued 
at very high replacement rates, we would expect this to 
meaningfully slow down job creation as some workers preferred 
to stay home receiving benefits in excess of their earned wages 
from work.
    A further problem with replacement rates at 100 percent or 
above is that since FICA taxes are not withheld from UI 
benefits, and in many States UI benefits are not taxed as 
income, pretax replacement rates of 100 percent can wind up 
being meaningfully higher than 100 percent in after-tax terms.
    A targeted proportional system of benefits that, when 
factoring in benefits from the underlying unemployment 
insurance (UI) program (including CARES Act programs) and any 
Federal supplement to the weekly benefit amount, caps 
replacement rates at 100 percent or lower would be preferred to 
a fixed benefit amount. This approach would not have as large 
negative labor supply effects as having two-thirds of workers 
receive benefits in excess of their previous wages. Capping 
wages at a level somewhat below 100 percent would be even more 
effective at achieving the dual goals of helping households pay 
for essentials and getting America back to work.
    Note that UI is a State and Federal partnership, and State 
laws individually set wage replacement rates, which typically 
are targeted at a 50 percent wage replacement up to a specified 
weekly benefit amount. A 100 percent wage replacement structure 
would create downward pressure on the labor market supply by 
acting as a disincentive to return to work and increase 
employer costs by making it harder for employers to hire more 
workers. Especially now, with State economies reopened and 
robust job growth, any potential restructuring of the 
fundamental premises of the UI system must align with the 
States, the U.S. Department of Labor, and must balance both the 
tax and benefit implications of the changes.

Q.2. On May 15th, 2020, the Small Business Administration and 
Treasury Department released the Paycheck Protection Program 
loan forgiveness application. The 11-page application is quite 
extensive and lengthy as it reflects the various forgiveness 
requirements implemented over the past several weeks. Many 
small businesses, some of whom received very small loans, may 
have to hire or rely on an outside source to complete the 
application accurately.
    Secretary Mnuchin, will SBA and Treasury consider releasing 
a revised and shortened version for borrowers with smaller 
loans?

A.2. SBA published an EZ version of the forgiveness application 
that requires fewer calculations and less documentation for 
eligible borrowers. In addition, Treasury has posted to its 
website a series of documents, including interim final rules 
that implement the PPP, a set of frequently asked questions, 
fact sheets, program reports, and other documents to address 
specific lender and borrower questions about eligibility and 
the application and forgiveness process, among other topics. 
This includes guidance to reflect the PPP Flexibility Act's 
amendments to the PPP to, among other things, extend the 
covered period for loan forgiveness to 24 weeks after the date 
of loan disbursement and to lower the percentage of a 
borrower's PPP loan proceeds that must be used for payroll 
costs. This also includes a set of frequently asked questions 
on loan forgiveness.
    Treasury and the SBA will continue to provide additional 
guidance, as appropriate, to help small businesses and other 
eligible borrowers get the assistance they need.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
                     FROM STEVEN T. MNUCHIN

Q.1. The CARES Act created a tax credit known as the Employee 
Retention Credit to encourage businesses to keep employees on 
their payroll. I understand that with this new credit, along 
with a similar tax credit created by previous COVID relief 
legislation, employers are able to request an advance payment 
of the credit using the IRS Form 7200. Unfortunately, I've 
heard that it may take up to four weeks to receive these 
advance payments.
    A number of legislative proposals would significantly 
expand the Employee Retention Credit but I am concerned that 
this would further delay advance payments. Is the current 
system underpinning the Form 7200 process capable of expansion? 
In lieu of the Form 7200, is the Treasury considering other 
systems that would be capable of handling an increased volume, 
and if so, how long would those systems take to implement?

A.1. Eligible employers that pay qualified wages for purposes 
of the Employee Retention Credit are able to retain an amount 
of all Federal employment taxes equal to the amount of the 
qualified wages paid, rather than depositing them with the IRS. 
The Federal employment taxes that are available for retention 
by these employers generally include Federal income taxes 
withheld from employees, the employees' share of Social 
Security and Medicare taxes, and the employer's share of Social 
Security and Medicare taxes with respect to all employees.
    If the Federal employment taxes yet to be deposited are not 
sufficient to cover the employer's cost of qualified wages, the 
employer is able to file a request for an advance payment from 
the IRS using Form 7200, Advance Payment of Employer Credits 
Due to COVID-19. While the IRS has established a manual system 
for processing the Form 7200, which does place constraints on 
the volume that can be handled, the process for employers to 
retain amounts of employment taxes, rather than deposit them, 
is not subject to those same constraints.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR PERDUE
                     FROM STEVEN T. MNUCHIN

Q.1. Bans on Merger and Acquisitions--Secretary Mnuchin, as you 
know some in Congress are urging passage of legislation that 
would prohibit merger and acquisition activity. Merger and 
acquisitions are an important part of economic activity, and in 
a crisis like the one we are facing, it may provide a life line 
for some business who may not have means of staying 
operational. Ensuring these businesses have the ability to 
partner with others also preserves jobs and important services 
in all of our States. Further, there are already sufficient 
government tools to protecting against inappropriate merger 
activity. Even, President Obama's CEA Advisor, Jason Furman, 
agreed recently by saying that a merger prohibition was 
``particularly misguided when some mergers can save jobs in the 
midst of an economic crisis''.
    Secretary Mnuchin, would you agree that a prohibition on 
mergers would be misguided, and would you agree there are 
already appropriate tools to manage these mergers to ensure 
workers and markets are protected?

A.1. A blanket prohibition on all merger and acquisition 
activity in the economy would be inappropriate. For further 
information, I respectfully refer you to the Justice 
Department.

Q.2.  U.S. Listing of Chinese Companies--Secretary Mnuchin, 
recently US-listed Chinese companies have been in the headlines 
for accounting scandals that have wiped away hundreds of 
millions in shareholder equity. Many members of Congress have 
voiced their view that Chinese companies are inherently risky 
to U.S investors because they are not subjected to PCOAB 
oversight. While I share concerns that these companies are not 
subjected to PCAOB oversight, I disagree that the solution to 
the problem is to force the delisting of all Chinese companies 
on U.S. exchanges. Afterall, delisting Chinese firms off U.S. 
stock exchanges not only would remove the soft power we have 
over these companies, but we wouldn't protect U.S. investors 
since asset managers, mutual funds, and retail investors will 
continue to purchase them wherever they are listed regardless 
if they are listed on a U.S. exchange or not.
    I am interested in your view on this situation, do you 
believe delisting all Chinese companies is the best solution to 
tackling this problem?

A.2. Under the Sarbanes-Oxley Act of 2002, the Public Company 
Accounting Oversight Board (the PCAOB) is charged with ensuring 
the integrity of the work of audit firms. A cornerstone of this 
is allowing the PCAOB to examine the work papers of an auditing 
firm related to its audit of a U.S.-listed company. However, 
China unfortunately prohibits the PCAOB from accessing audit 
work papers for Chinese companies listed in the U.S. This is a 
problem that must be addressed for two reasons. First, if the 
PCAOB cannot examine the work of auditing firms as required by 
Sarbanes-Oxley, U.S. investors are exposed to a greater risk of 
fraud. Second, high-quality financial reporting and auditing 
are the bedrock of our financial system and have made U.S. 
capital markets the most robust in the world. It is imperative 
that we maintain the highest standards.
    On June 4, President Trump issued a memorandum tasking the 
President's Working Group on Financial Markets (the PWG) with 
examining risks to investors in U.S. financial markets from 
China's failure to allow the PCAOB to do its job. In response, 
the PWG issued a report unanimously recommending five actions 
that U.S. government agencies can take to protect investors in 
U.S. financial markets relating to this audit issue. These 
recommendations considered the impact on investors and the 
continued fair and orderly operation of U.S. financial markets.
    The first recommendation touches on your question most 
directly. The PWG recommends that the Securities and Exchange 
Commission enhances listing standards to require, as a 
condition to initial and continued exchange listing in the 
United States, PCAOB access to work papers for the audit of a 
listed company. For companies from noncooperating jurisdictions 
(so-called ``NCJs'') that are unable to satisfy that standard 
as a result of governmental restrictions, this standard may be 
satisfied by providing a co-audit from an audit firm where the 
PCAOB has sufficient access to audit work papers. For example, 
if a current auditor is a Chinese subsidiary of an 
international accounting firm, the U.S. entity of the 
international accounting firm could agree to undertake a co-
audit and provide access of its work papers to the PCAOB. To 
reduce market disruption, the recommended new listing standards 
could provide for a transition period until January 1, 2022 for 
currently listed companies to come into compliance. However, 
there would be no transition period for new listings. I would 
like to emphasize that we are simply leveling the playing 
field, holding Chinese firms listed in the U.S. to the same 
standards as everyone else.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                     FROM STEVEN T. MNUCHIN

Q.1. As I mentioned in the hearing, I am concerned that 
companies in need of financial assistance do not meet the 
eligibility criteria for the existing Federal Reserve (Fed) and 
Treasury programs. The Fed's programs are largely limited to 
investment grade (IG) companies with certain leverage criteria 
that gets harder to satisfy the longer the pandemic goes. These 
programs have excluded otherwise well run companies that are 
not IG, or somehow don't fit the specific criteria--companies 
that are sometimes even deemed essential by the Cybersecurity 
and Infrastructure Security Agency within the Department of 
Homeland Security.
    What is the Federal Reserve and Treasury doing to help 
well-managed non-IG companies that have weathered the initial 
storm without any government assistance, but may need access to 
liquidity in the next couple of months?

A.1. The Main Street Lending Program provides bridge financing 
to small- and medium-sized businesses with up to 15,000 
employees or $5 billion in revenue. Main Street does not have a 
rating requirement, and most borrowers are not Investment 
Grade.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                     FROM STEVEN T. MNUCHIN

Q.1. Section 1102 of the CARES Act, requires eligible borrowers 
to make good faith certifications for both loan eligibility and 
loan forgiveness and seeks to hold lenders ``harmless.'' An 
interim final rule notes, ``The lender does not need to conduct 
any verification if the borrower submits documentation 
supporting its request for loan forgiveness and attests that it 
has accurately verified the payments for eligible costs . . . 
The Administrator will hold harmless any lender that relies on 
such borrower documents and attestation from a borrower.'' 
While it is understandable that normal processes and 
verifications are set aside during these unprecedented times, 
we must also utilize tools and technologies that are available 
to assess for potential fraud.
    Do you agree that the government should be looking at ways 
to deter fraud in these programs and can you please explain and 
detail how Treasury is working to deploy fraud management tools 
and technologies to deter bad actors and help with loan 
approvals and forgiveness decisions? Can you also detail what 
lookback procedures are in place to protect taxpayer dollars?

A.1. On July 23, 2020, SBA issued a procedural notice to 
lenders that included procedures for forgiveness loan reviews. 
I respectfully refer you to the SBA for more information.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR MCSALLY
                     FROM STEVEN T. MNUCHIN

Q.1. Short-term funding provisions are essential for nonprofits 
right now, especially those with more than 500 employees that 
are not eligible for the Paycheck Protection Program. 
Nonprofits provide critical services to the most vulnerable. 
Nonprofits often lack the ability to raise funds the way for-
profit enterprises can, and taking on additional debt can 
severely affect the services nonprofit organizations provide. 
What actions is Federal Reserve and Treasury considering for 
nonprofits employers with between 500 and 10,000 employees?

A.1. On September 4, the Federal Reserve Bank of Boston 
announced that two new Main Street Lending Program loan 
facilities for nonprofit organizations were fully operational. 
These new facilities are designed to help credit flow to small- 
and medium-sized nonprofit organizations that were in sound 
financial condition prior to the pandemic and have solid post-
pandemic prospects.

Q.2. As an investor in the Federal Reserve facilities (through 
the Exchange Stabilization Fund) and as the Chairman of the 
Financial Stability Oversight Council (FSOC), you have a broad 
perspective to consider this issue and act to provide liquidity 
assistance. Can you provide the indicators you are using to 
guide your decision making as it relates to the necessity for a 
mortgage servicer liquidity facility?

A.2. Treasury is actively monitoring the mortgage market and 
the associated impact of COVID-19. We have focused considerable 
resources on delivering authorized support to households and 
businesses struggling as a consequence of the necessary public 
health response. On March 26, 2020, Secretary Mnuchin announced 
the creation of a Financial Stability Oversight Council Task 
Force on Nonbank Mortgage Liquidity, which first convened on 
March 30 to discuss conditions and activities in the mortgage 
servicing markets and remains in regular discussions. Treasury 
will continue to work to promote stable markets, including for 
residential mortgage lending.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                     FROM STEVEN T. MNUCHIN

Q.1. You mentioned during the hearing that between the PPP, the 
EIDL loans and the Main Street programs, it is your objective 
to help as many companies as possible and to ensure that 
companies do not ``fall through the cracks'' of these programs. 
As you know there are many companies that are doing all that 
they can to support their local economy, to keep their doors 
open, workers employed, including those that are helping to 
serve first responders but unfortunately due to the employee 
threshold, investment grade requirement and/or asset threshold, 
these great companies are falling through the cracks and as a 
result do not benefit from these programs.
    What are you doing to ensure that these companies are 
getting the help that they need to stay in business and when 
should we expect to see some additional changes to the programs 
so that these companies no longer have to decide whether or not 
to close their doors for good?

A.1. With respect to the PPP, Treasury has posted to its 
website a series of documents, including interim final rules 
that implement the PPP, a set of frequently asked questions, 
fact sheets, program reports, and other documents to address 
specific lender and borrower questions about eligibility and 
the application and forgiveness process, among other topics. 
This includes guidance to reflect the PPP Flexibility Act's 
amendments to the PPP, including by:

    Extending the covered period for loan forgiveness 
        from eight weeks after the date of loan disbursement to 
        24 weeks after the date of loan disbursement, providing 
        substantially greater flexibility for borrowers to 
        qualify for loan forgiveness. Borrowers who have 
        already received PPP loans retain the option to use an 
        eight-week covered period.

    Lowering the requirements that 75 percent of a 
        borrower's loan proceeds must be used for payroll costs 
        and that 75 percent of the loan forgiveness amount must 
        have been spent on payroll costs to 60 percent for each 
        of these requirements. If a borrower uses less than 60 
        percent of the loan amount for payroll costs during the 
        forgiveness covered period, the borrower will continue 
        to be eligible for partial loan forgiveness, subject to 
        at least 60 percent of the loan forgiveness amount 
        having been used for payroll costs.

    Increasing to five years the maturity of PPP loans 
        that are approved by SBA (based on the date SBA assigns 
        a loan number) on or after June 5, 2020.

    In addition, the SBA published an EZ version of the 
forgiveness application that requires fewer calculations and 
less documentation for eligible borrowers. Treasury and the SBA 
will continue to provide additional guidance, as appropriate, 
to help small businesses and other eligible borrowers get the 
assistance they need.
    The Main Street Lending Program provides bridge financing 
to small and medium-sized businesses and nonprofit 
organizations. Businesses and nonprofit organizations with less 
than 15,000 employees or less than $5 billion in 2019 revenue 
have access to 5 year loans under five Main Street loan 
facilities, with loan sizes ranging from $250,000 to as high as 
$300,000,000. The Federal Reserve and the Treasury are 
continuously evaluating feedback from borrowers, lenders, and 
other stakeholders to determine how to adapt the Main Street 
facilities so as to make them accessible to an even broader 
spectrum of American businesses and nonprofit organizations.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAMER
                     FROM STEVEN T. MNUCHIN

Q.1. On April 28, 2020, Eighteen of my colleagues and I sent 
you a letter in opposition to the increasing tactic of the 
Nation's large financial institutions discrimination or 
debanking of legal and complaint industries such as the 
firearms, oil and gas, and coal industry based on politics or 
social popularity, not financial standing. Our letter focused 
specifically on what efforts were being made at the SBA and 
other regulatory agencies to ensure equal access to Federal 
recovery and stimulus funds. Have you seen this letter? Do you 
have any thoughts?
    But this question leads up to a more important question 
which I have been wanting to ask--Mr. Secretary, do you believe 
a financial institution which accesses or utilizes the 
taxpayer's Federal Reserve's Open Window, Federal Deposit of 
Insurance (FDIC) or Automated Clearing House (ACH) should be 
allowed to discriminate against a legal and complaint business 
based on social or political policy?

A.1. The Secretary shares your interest in making stimulus 
programs available to as many of America's job creators and 
their employees as feasible, and expects that participating 
lenders will not discriminate against particular companies or 
industries that are otherwise eligible under program rules.

Q.2. Recent reports have been published saying the Treasury 
Department is considering extending the safe harbor by one-year 
for wind and solar tax credits. Yesterday, I sent you a 
bipartisan letter asking in light of these reports will you 
consider a similar one-year extension for companies wanting to 
use the 45Q tax credit? I noted in my letter, these are the 
same companies that have been waiting for the final rules on 
45Q two years after the deadline has passed.

A.2. We recently extended deadlines for the production tax 
credit and investment tax credit that were due to expire in 
2020 or 2021. Although the section 45Q credit is similar to the 
production tax credit and investment tax credit in terms of the 
beginning of the construction framework and safe harbors, the 
potential deadlines are still several years away. That said, we 
will continue to monitor the situation because we understand 
how important certainty is in the planning and development of 
these projects. We also encourage stakeholders to submit 
comments on the recently issued proposed regulations and 
include recommendations for changes or flexibility in the rules 
that could be helpful during unforeseen circumstances.

Q.3. You recently announced that Treasury and the SBA will 
audit any PPP loans in excess of $2 million to verify whether 
the business ``really'' needed the loan. Many small businesses, 
including those in the manufacturing industry, have payroll 
costs that necessitated a loan of $2 million or more to keep 
their workers paid during the crisis. How are Treasury and the 
SBA going to ensure that these companies' loans are not 
retroactively put at risk?

A.3. Borrowers with loans of $2 million or more may have an 
adequate basis for making the required good-faith 
certification, based on their individual circumstances in light 
of the language of the certification and SBA guidance. On June 
1, the SBA issued an interim final rule describing its loan 
review procedures and related lender and borrower 
responsibilities. Treasury and SBA have also posted guidance on 
frequently asked questions on loan forgiveness, as well as on 
procedures for lenders' submissions of PPP loan forgiveness 
decisions to SBA and SBA loan forgiveness reviews. Treasury and 
SBA will continue to provide additional guidance, as 
appropriate, to help small businesses and other eligible 
borrowers get the assistance they need.

Q.4. The CARES Act makes clear that PPP loan forgiveness should 
be tax free--yet recent IRS guidance would deny the 
deductibility of business expenses paid with PPP funds, which 
is contrary to congressional intent. This guidance makes it 
harder for small businesses to keep workers on payroll during 
this crisis. Will you commit to reversing this guidance, 
pursuant to congressional intent in the CARES Act, and allow 
small manufacturers to receive the full benefit of the PPP? 
Also on the PPP issue, are you considering allowing companies 
to renew their loans instead of reapplying? Will you allow 
companies extra time to use unspent funds?

A.4. Neither the initial receipt of the borrowed cash under a 
PPP loan nor the forgiveness of a PPP loan result in taxable 
income. The IRS has issued guidance \1\ that section 265 of the 
Internal Revenue Code denies a double benefit if:
---------------------------------------------------------------------------
     \1\ https://www.irs.gov/pub/irs-drop/n-20-32.pdf.

  1.  a PPP loan borrower uses the cash from the loan to pay 
        business expenses that would otherwise be tax 
        deductible (payroll, rent, mortgage interest, 
---------------------------------------------------------------------------
        utilities, etc.); and

  2.  the PPP loan is forgiven.

    That is, section 265 applies to deny a deduction for the 
otherwise deductible expenses up to the amount of the loan 
forgiveness. In addition, the IRS guidance identifies long-
established authorities that deny deductions for otherwise 
deductible payments for which the taxpayer receives 
reimbursement. Otherwise deductible expenses that give rise to 
PPP loan forgiveness are reimbursed by the forgiveness of the 
PPP loan and therefore would not be deductible for this reason 
as well.
    Treasury and the SBA will continue to provide additional 
guidance, as appropriate, to help small businesses and other 
eligible borrowers get the assistance they need.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                     FROM STEVEN T. MNUCHIN

Q.1. As you may know, CNBC has reported that the 
``Congressional Budget Office projects GDP dropping 38 percent 
in the second quarter as 26 million Americans remain 
unemployed.''
    In light of these projections, are the Federal Reserve and 
the Department of the Treasury considering either expanding the 
forthcoming Main Street Lending Program or creating a different 
program to facilitate lending to U.S. businesses with more than 
15,000 employees so that they may also get assistance with 
keeping workers on the job?

A.1. The purpose of the Main Street Lending Program is to 
provide bridge financing for small- and medium-sized businesses 
and nonprofit organizations to help them through the COVID-19 
crisis. Other Federal Reserve facilities focus on the financing 
needs of large businesses and State and local governments.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR MENENDEZ FROM STEVEN T. MNUCHIN

Q.1. The Small Business Administration (SBA) Inspector General 
found that the SBA and Treasury failed to direct lenders to 
prioritize underserved communities, including minority- and 
female-owned businesses, as mandated by Congress when the 
agencies implemented the Paycheck Protection Program (PPP) 
under the CARES Act. Compounding SBA and Treasury's failure to 
release guidance prioritizing underserved borrowers, Treasury 
took almost a month after passage of the CARES Act to release 
guidance for non-SBA approved CDFIs to participate in the PPP 
program. As you know, CDFIs offer financial services to 
underserved communities.
    Why was the CDFI guidance delayed for almost a month?

A.1. In light of the urgency to launch the program, SBA and 
Treasury determined that the most effective way to ensure PPP 
loans could reach underserved communities was to make sure that 
we had a substantial number of lenders participating that were 
positioned to reach borrowers who had had less well-established 
banking relationships. These efforts included issuing an 
Interim Final Rule before the program launched detailing who is 
eligible to make PPP loans (including hundreds of CDFIs, among 
other types of lenders).

Q.2. How is Treasury working with CDFIs to ensure they are 
prepared to offer PPP loans to underserved small businesses, 
including women and minority-owned small businesses?

A.2. Treasury and SBA have undertaken extensive and ongoing 
efforts to encourage lending to underserved and rural 
borrowers. These efforts have included recruiting lenders that 
operate in underserved communities to participate in PPP and 
facilitating their approval of PPP loans, as well as educating 
underserved borrowers about the opportunities that exist for 
them through PPP. Guidance was issued to all lenders asking 
them to redouble their efforts to assist eligible borrowers in 
underserved and disadvantaged communities. This was done to 
ensure that individuals, businesses, and other entities in 
underserved and rural markets, including veterans and members 
of the military community, small business concerns owned and 
controlled by socially and economically disadvantaged 
individuals, women, and businesses in operation for less than 
two years, all benefited from PPP.
    Treasury and SBA have worked closely with Congress, 
regional and community banks, fintech lenders, CDFIs, MDIs, the 
Department of Agriculture, and other stakeholders to ensure 
that as many workers and small businesses as possible can 
readily participate in the opportunities afforded by this 
program, with particular focus on underserved borrowers, 
including minorities, women, and rural entrepreneurs. Treasury 
and SBA extensively recruited lending institutions that 
typically operate in underserved communities to participate as 
PPP lenders. An important focus of our efforts to serve 
underserved communities has been to harness the role of CDFIs 
and MDIs. Hundreds of CDFIs were contacted and advised of their 
eligibility to participate in the PPP. As of August 8, 2020, 
when the PPP closed to new loan applications, 432 CDFIs and 
MDIs had participated and provided 221,000 loans totaling more 
than $16.4 billion. The program has resulted in $106 billion 
provided to businesses in HUBZones, accounting for more than 20 
percent of all PPP funding. Data also show that the loans have 
been broadly distributed and made across diverse areas of the 
economy, with 27 percent of the funds going to low- and 
moderate-income communities, which is in proportion to their 
percentage of the population.

Q.3. It is my understanding that while Treasury has attempted 
to identify and reach all citizens eligible for a direct 
payment under the CARES Act, significant challenges remain to 
ensuring that unbanked Americans get their payment in a fast, 
safe and efficient manner.
    What specific actions has Treasury taken to identify and 
deliver payments to underbanked and unbanked citizens?

A.3. The IRS launched the Non-Filers tool and a substantial 
communications effort that together have helped millions of 
individuals, including the unbanked and underbanked, who are 
not otherwise required to file a tax return, to provide the 
information the IRS needed to issue an Economic Impact Payment. 
The Treasury Department, Fiscal Service, and the IRS also 
collaborated with other Federal agencies, including the 
Consumer Financial Protection Bureau, the Social Security 
Administration, and the Federal Deposit Insurance Corporation 
(FDIC) to provide information on the Non-Filers tool. With 
regard to the FDIC, information included instructions on how to 
find, open, and provide new bank account information to the IRS 
for the purpose of receiving an Economic Impact Payment. The 
Treasury Department and the IRS initially prioritized mailing 
checks to people with low AGI, starting with individuals with 
an AGI of less than $10,000, then mailed checks to individuals 
with progressively higher AGI amounts.
    In addition, 2.1 million payments were automatically 
delivered electronically to Direct Express cardholders, who are 
mostly unbanked and use the Direct Express card program to 
electronically receive their monthly benefit payments. The 
Treasury Department has issued approximately four million 
Economic Impact Payments on Economic Impact Payment debit cards 
(EIP Cards), through the Treasury Department's safe, 
convenient, and secure U.S. Debit Card program. The U.S. Debit 
Card program provides debit card services to Federal agencies 
for electronic delivery of certain payments. To facilitate the 
use of these EIP Cards, the IRS has provided general 
information and FAQs at https://www.EIPcard.com and on IRS.gov. 
To inform payees on how to receive their Economic Impact 
Payment on an existing general purpose reloadable debit card 
(GPR Card), the IRS included information in FAQs regarding how 
an account and routing number of a GPR Card can be provided to 
the IRS through the Get My Payment portal or the Non-Filers 
tool.

Q.4. How many Americans are still owed a payment under the 
CARES Act?

A.4. As of September 18, 2020, Treasury and the IRS have issued 
more than 163 million Economic Impact Payments totaling more 
than $273 billion to individuals for whom the IRS has the 
necessary information. Treasury and the IRS have worked 
extensively to identify and reach out to eligible individuals 
who have not received an Economic Impact Payment.

Q.5. Is Treasury developing additional efforts to reach these 
people?

A.5. The IRS has engaged other Federal agencies to assist in 
outreach efforts to Federal program beneficiaries who may not 
have a filing obligation to use the Non-Filer portal \1\ on the 
IRS website to claim an Economic Impact Payment. In addition, 
on September 8, the IRS announced that they will be sending 
letters to roughly 9 million Americans who typically do not 
file Federal income tax returns and may be eligible for, but 
have yet to claim, an Economic Impact Payment.
---------------------------------------------------------------------------
     \1\ See https://www.irs.gov/coronavirus/non-filers-enter-payment-
info-here.

Q.6. Has the Administration considered using digital payments 
as potential means of disbursing these funds? If so, please 
describe any hurdles to implementation that have been 
identified. If not, please explain why this solution has not 
---------------------------------------------------------------------------
been considered.

A.6. As of September 18, 2020, Treasury and the IRS have issued 
more than 163 million Economic Impact Payments totaling more 
than $273 billion to individuals for whom the IRS has the 
necessary information. The IRS and Fiscal Service accelerated 
the rate of delivery of Economic Impact Payments to many 
eligible Americans by successfully shifting such delivery away 
from paper checks and to:

  1.  Direct deposit through information obtained through the 
        Get My Payment portal and Non-Filers tool on IRS.gov 
        (where the taxpayer can input their bank account 
        information).

  2.  Debit cards (which are funded electronically).

  3.  Bank accounts based on information provided by the Bureau 
        of the Fiscal Service, Social Security Administration, 
        and the Department of Veterans Affairs.

    Treasury and the IRS found that these methods of 
disbursement provided payment in a safe, secure, convenient, 
and timely fashion.

Q.7. If there is a second round of direct payments, will the 
Administration consider digital disbursement technologies to 
ensure the vulnerable are not delayed in receiving their 
payments, nor be forced to pay unfair fees to access their 
money?

A.7. If there is a second round of direct payments, Treasury 
and the IRS would make those payments in a safe, secure, 
convenient, and timely fashion. The use of digital 
disbursements technologies can be further evaluated, 
specifically with respect to how the Federal Government would 
balance fraud protection requirements against ease of access to 
funds for consumers. In addition, if the payment mechanism 
requires the Federal Government to sponsor an account for the 
recipient, reasonable fees may be required for optional 
services to ensure that taxpayers do not unfairly bear the 
costs of digital account ownership by individual citizens.

Q.8. As you know, State and local governments are under 
tremendous financial strain. Many of us in Congress believe 
that direct assistance from the Federal Government and support 
in the form of lending facilities under Section 4003 of the 
CARES Act are critical to preventing additional layoffs of 
public workers, dangerous cuts to public safety and essential 
services, and large local tax increases. It is also important 
that we consider how the private sector can assist State and 
local governments to better manage their cash and serve as a 
source of financing for infrastructure and other public 
services.
    Has the Treasury identified any impediments to greater 
investment by the private sector in the municipal bond market?

A.8. One impediment concerns disclosures. Greater investment in 
the municipal market by the private sector can be achieved if 
bond issuers commit to the disclosure of important financial 
and operational information in a format that is timely, 
complete, and comparable. As you know, the disclosure 
requirements and practices in the municipal bond market are not 
as stringent as in corporate funding markets. Another 
impediment is scale. Municipal infrastructure projects and 
associated processes are characterized by factors that may make 
it difficult for private investors to meaningfully scale local 
investments into broader business practices. For example, 
idiosyncratic and often small proposed projects, combined with 
bespoke State and local government processes (e.g., 
procurement, permitting, contracting), may contribute toward a 
challenging environment for scalable private investment 
practices. Finally, there is often a mismatch between a 
municipal project need and the expertise and availability of 
private market operators willing to assume the risks in a 
public-private partnership.

Q.9. Is the Treasury currently seeking any legislative changes 
to enable the private sector to provide additional capital to 
State and local governments? If so, please share those 
proposals.

A.9. Treasury is not currently seeking any legislative changes 
related to this topic.

Q.10. We are now 3 months into the COVID-19 pandemic and are 
economy is under massive strain. More than 100,000 small 
businesses have closed their doors forever. Additionally, three 
out of four businesses have experienced declines in revenue. 
Our businesses are in a free fall and the Main Street lending 
facility could be a life line for businesses, if implemented 
properly.
    With the roll-out of the Paycheck Protection Program (PPP), 
we saw how lending institutions and the Small Business 
Administration's systems were overwhelmed by the loan demand. 
How are you preparing banks for the volume of Main Street loan 
applications they will receive? What are you doing to prepare 
your own systems for the massive loan volume?

A.10. The Federal Reserve and the Department of Commerce, in 
conjunction with SBA, have conducted webinars to explain the 
Main Street Lending Program to eligible lenders. All five Main 
Street facilities are operational and have the capacity to 
process the loan volume.

Q.11. Are you allowing banks to limit loan applications to 
existing customers? And, if so, will they be allowed to 
prioritize their biggest customers?

A.11. The Federal Reserve is encouraging banks to accept 
applications for Main Street loans from new customers. More 
than 550 banks have registered for the Main Street Lending 
Program. Approximately, 180 banks in all 50 States and U.S. 
territories have agreed to be listed on the Federal Reserve 
Bank of Boston website as accepting new customers for Main 
Street loans. Many other banks accept Main Street loan 
applications from new customers but have asked not to be listed 
on the website.

Q.12. I have heard concerns that the earnings metrics the 
Federal Reserve and Treasury intend to use for the Main Street 
lending facilities are ill-suited for important sectors of our 
economy that employ hundreds of thousands of Americans.
    As you develop final guidance for these facilities, are you 
examining whether the Federal Reserve and Treasury could use 
additional metrics for different industries to ensure that as 
many sectors of our economy as possible can utilize the 
program?

A.12. The Federal Reserve and the Treasury are continuously 
evaluating feedback from borrowers, lenders, and other 
stakeholders to determine how to adapt the Main Street 
facilities so as to make them accessible to an even broader 
spectrum of American businesses and nonprofit organizations.

Q.13. Borrowers from commercial mortgage-backed securities 
(CMBS), like hotels, shopping centers, and housing complexes, 
attest that they are under significant financial hardship. In 
many cases, their tenants are not able to pay rent and their 
mortgage servicers are not offering flexibility. Several 
affected entities are concerned about their ability to meet 
their financial obligations over a protracted period of time.
    Does the Treasury or Federal Reserve have plans to address 
these concerns in the CMBS market, and if so, how?

A.13. Treasury and the Federal Reserve continue to monitor the 
market impact of the COVID-19 pandemic on commercial real 
estate borrowers, including those whose loans are in CMBS. 
Treasury continues to work with the Federal Reserve to assess 
the efficacy of existing facilities established under the 
Federal Reserve's 13(3) emergency lending authority, and will 
evaluate appropriate changes necessary to promote the flow of 
credit and support a robust economic recovery.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
                     FROM STEVEN T. MNUCHIN

Q.1. Tribes have experienced a number of issues so far with the 
Coronavirus Relief Fund including questions about the formula, 
data breaches, and lack of clarity on guidance.
    How will you ensure Tribes have the guidance they need to 
respond to community needs using Tribal Coronavirus Relief 
funds in the coming months?

A.1. Treasury has worked closely with tribes throughout the 
application process. Prior to and during the first round of 
funding, Treasury and BIA held two joint tribal consultations 
and provided a written comments period from March 31, 2020, 
through April 13, 2020. Treasury also held discussions with 
Native American associations and tribal financial experts to 
consider a process that would be familiar to tribes, and 
provide verifiable and objective information.
    Treasury has provided extensive guidance in response to 
requests from tribes for clarification as to the permissible 
uses of CRF funds.

Q.2. What measures has Treasury put in place to prevent another 
Tribal Coronavirus Relief data breach from occurring again?

A.2. Treasury will endeavor to continue to only provide data 
with those essential to implementing Title V of the CARES Act 
within their official duties.

Q.3. Recent data on the availability of credit suggests that it 
has not been this difficult to obtain a mortgage since 2014, 
and constraints on the availability of credit are particularly 
acute for borrowers of non-QM loans and jumbo loans. Because 
these mortgages are frequently packaged and sold as residential 
mortgage-backed securities (RMBS) to private investors, the 
recent illiquidity in secondary market private RMBS exacerbates 
the lack of funding for such mortgages.
    Non-agency RMBS is the largest asset class by volume within 
all ABS, comprising approximately 30 percent of the market, but 
is one of the few asset classes which is not currently eligible 
under the Term Asset-backed Lending Facility (TALF) program.
    Are there plans to allow AAA RMBS securities as eligible 
collateral under TALF?
    As many States move forward with reopening, Montana being 
one of them, what assistance and guidance are you providing 
PHAs in regards to reopening?
    Would jumbo AAA RMBS and non-QM RMBS be eligible? Would 
other sub asset classes--such as reperforming loans for 
borrowers coming off a credit event--be eligible as well?
    What support can Treasury lend to the Fed under TALF to 
support the housing market so that financing is available for 
self-employed or nontraditional borrowers who rely on non-QM 
mortgages, or to borrowers who live in high-cost areas who rely 
on jumbo financing?
    What metrics will you use in making these determinations?

A.3. Treasury and the Federal Reserve are actively monitoring 
the mortgage market and the associated impact of COVID-19. We 
have focused considerable resources on delivering authorized 
support to households and businesses struggling as a 
consequence of the necessary public health response. Treasury 
will continue to monitor the market, including the residential 
mortgage lending market. Treasury continues to work with the 
Federal Reserve to assess the efficacy of existing facilities 
established under the Federal Reserve's 13(3) emergency lending 
authority, and will evaluate appropriate changes necessary to 
promote the flow of credit and support a robust economic 
recovery. No decision has been taken to expand the eligible 
collateral for TALF at this time.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                     FROM STEVEN T. MNUCHIN

Q.1. Airline Assistance--The CARES Act provided $50 billion in 
taxpayer funds to assist passenger airlines. The CARES Act 
specifies that, as a condition of receiving financial 
assistance, carriers must ``refrain from conducting involuntary 
furloughs or reducing pay rates and benefits until September 
30, 2020.'' A small number of carriers, including Delta Air 
Lines, have received financial assistance and subsequently cut 
the hours of full-time workers. Why has Treasury taken no 
action against companies that accepted payroll assistance and 
then cut worker hours, thereby reducing take home pay for 
workers?

A.1. Treasury incorporated the requirements of the CARES Act 
into a PSP agreement that must be executed by each PSP 
recipient and Treasury. Each PSP agreement reflects the 
requirements in section 4114(a) of the CARES Act, which 
prohibits recipients from ``conducting involuntary furloughs or 
reducing pay rates and benefits until September 30, 2020.'' 
Treasury has also imposed reporting requirements to enable it 
to monitor PSP recipients' compliance with the PSP agreements, 
and each recipient is required to provide quarterly 
certifications that it is in compliance with the terms and 
conditions of the agreement. The agreement also makes clear 
that PSP funds must be used exclusively to continue paying 
employee salaries, wages, and benefits-the funds may not be 
used for any other purpose.

Q.2. Treasury has issued guidance in a series of Q&A documents 
that clarify the Department's view of how carriers and 
contractors can comply with many terms of the payroll 
assistance program, including the rules on stock buybacks, 
dividends, and executive compensation. That guidance states 
that the assistance is ``intended to preserve aviation jobs and 
compensate air carrier industry workers by providing 
continuation of payment of employee wages, salaries, and 
benefits.'' However, even after public reports have emerged 
that some carriers have begun cutting hours of workers, 
Treasury has not issued guidance on whether cutting employee 
hours or mandating unpaid time off for employees violates the 
CARES Act. Does the Treasury Department plan to issue guidance 
regarding whether cutting employee hours violates Section 4114 
of the CARES Act for airlines receiving financial assistance 
under the payroll relief provisions? If yes, when will you 
release this guidance? If no, why not?

A.2. Treasury incorporated the requirements of the CARES Act 
into a PSP agreement that must be executed by each PSP 
recipient and Treasury. Each PSP agreement reflects the 
requirements in section 4114(a) of the CARES Act, which 
prohibits recipients from ``conducting involuntary furloughs or 
reducing pay rates and benefits until September 30, 2020.'' 
Treasury has also imposed reporting requirements to enable it 
to monitor PSP recipients' compliance with the PSP agreements, 
and each recipient is required to provide quarterly 
certifications that it is in compliance with the terms and 
conditions of the agreement. The agreement also makes clear 
that PSP funds must be used exclusively to continue paying 
employee salaries, wages, and benefits--the funds may not be 
used for any other purpose.

Q.3. Have you, or any person in the Treasury Department, 
consulted with any representatives of Delta Air Lines regarding 
compliance with Section 4114 of the CARES Act, and did Treasury 
Department provide Delta Air Lines with any guidance regarding 
complying with CARES Act provisions? If so, when did this take 
place, who was involved, and what guidance was provided?

A.3. Treasury has not provided guidance to Delta Air Lines 
regarding compliance with the CARES Act's prohibition on 
involuntary furloughs or reducing pay rates and benefits, other 
than Treasury's publicly issued guidance and the requirements 
set forth in the PSP agreement.

Q.4. Did any airline receiving financial assistance for payroll 
relief under the CARES Act seek guidance from the Treasury 
Department regarding whether reducing employee hours, or 
implementing unpaid mandatory time off, complies with Section 
4114 of the CARES Act? Did anyone at Treasury provide that 
guidance? If so, when did this take place, who was involved, 
and what guidance was provided?

A.4. The guidance Treasury has provide regarding compliance 
with section 4114 of the CARES Act is set forth in the terms of 
the PSP agreement and in the guidance documents that Treasury 
has publicly issued.

Q.5. CARES Act Oversight--Will you commit to provide the 
Congressional Oversight Commission with any documents or 
materials it requests in a timely manner?

A.5. We have dedicated teams of people working around the clock 
responding to near-daily requests from Congress and six 
oversight bodies, including the Congressional Oversight 
Commission, related to either the CARES Act or the COVID-19 
pandemic more generally. Treasury is and will continue working 
with the Congressional Oversight Commission to timely 
accommodate the Commission's interests, including by providing 
documents and materials in a manner consistent with the 
Executive Branch's constitutional tradition of accommodation 
among our branches.

Q.6. Will you commit to provide the Special Inspector General 
for Pandemic Relief with any documents or materials he requests 
in a timely manner?

A.6. We have dedicated teams of people working around the clock 
responding to near-daily requests from Congress and six 
oversight bodies, including the Special Inspector General for 
Pandemic Relief (SIGPR), related to either the CARES Act or the 
COVID-19 pandemic more generally. Treasury is and will continue 
working with the SIGPR to ensure that office has access to the 
information necessary to fulfill its obligations under the law.

Q.7. Will you commit to provide the Pandemic Response 
Accountability Committee with any documents or materials it 
requests in a timely manner?

A.7. We have dedicated teams of people working around the clock 
responding to near-daily requests from Congress and six 
oversight bodies, including the Pandemic Response 
Accountability Committee (PRAC), related to either the CARES 
Act or the COVID-19 pandemic more generally. Treasury has 
worked diligently to accommodate oversight needs from all of 
our oversight bodies, including the PRAC, and will continue to 
provide information to accommodate their various interests 
related to the CARES Act.

Q.8. Will you commit to submit to the Senate Banking Committee 
majority and minority a weekly list of any instances in which 
you have denied the Special Inspector General for Pandemic 
Relief or the Pandemic Relief Accountability Committee 
information in the course of their oversight?

A.8. We have dedicated teams of people working around the clock 
responding to near-daily requests from Congress and six 
oversight bodies, including the Special Inspector General for 
Pandemic Relief and PRAC, related to either the CARES Act or 
the COVID-19 pandemic more generally. Treasury has worked 
diligently to accommodate oversight needs from all of our 
oversight bodies. Treasury will work with the Senate Banking 
Committee to timely accommodate requests by the Committee in a 
manner consistent with the Executive Branch's constitutional 
tradition of accommodation among our branches.

Q.9. Will you commit to requiring companies that participate in 
lending facilities backstopped with CARES Act money to disclose 
detailed information regarding how they use this financial 
assistance?
    Will you commit to requiring companies to disclose 
compensation and workforce data, including the mean, median, 
and minimum wages of all non-executive employees; the number of 
workers before and after the receipt of assistance; and the 
salaries of executives, including bonuses and capital 
distributions?
    Will you commit to making this information public?

A.9. Treasury is committed to transparency when implementing 
the CARES Act provisions. Among other voluntary measures, 
Treasury and SBA agreed with the bipartisan leaders of the U.S. 
Senate Small Business Committee to make public additional data 
regarding PPP, ensuring that the interests of both transparency 
and protections for small businesses are served. Treasury has 
also implemented transparency measures for the Payroll Support 
Program, including making available online a list of 
participants, with amounts of assistance provided and, where 
applicable, financial instruments provided to the Federal 
Government as appropriate compensation for the provision of 
financial assistance. Further, the Federal Reserve Board is 
reporting substantial amounts of information on a monthly basis 
for the liquidity and lending facilities using CARES Act 
funding, including the:

    Names and details of participants in each facility;

    Amounts borrowed and interest rate charged; and

    Overall costs, revenues, and fees for each 
        facility.

    Treasury will continue to work to ensure they fulfill their 
statutory reporting requirements, and will continue 
administering the programs Congress provided for under the 
CARES Act in a manner consistent with the text of the statute, 
which was the result of earnest bipartisan negotiations that 
resulted in overwhelmingly bipartisan support in both the House 
and the Senate.

Q.10 Conflicts of Interest--Please describe how are you working 
with the Treasury Department ethics officials to address and 
manage or to prohibit conflicts of interest that may arise in 
connection with the Administration and execution of the 
authorities provided under the CARES Act?

A.10. The Department has a robust ethics program, which I fully 
support. Department ethics officials acted swiftly to educate 
employees on potential conflicts of interests that could arise 
from changes to or expansion of their official duties due to 
implementation of the CARES Act. This included the provision of 
general and targeted advice on the criminal conflict of 
interest statute, 18 U.S.C. 208, the impartiality and misuse 
of position provisions of the Standards of Ethical Conduct for 
Employees of the Executive Branch, 5 CFR part 2635, subparts E 
and G, and the Ethics Pledge, EO 13770.

Q.11. How is the Treasury Department prohibiting or addressing 
conflicts arising in the selection or hiring of contractors or 
advisors?

A.11. Department ethics officials have been involved in the 
provision of ethics advice to prospective and new employees and 
detailees with CARES Act implementation responsibilities, with 
the aim of detecting facially problematic ethics issues prior 
to appointment or assignment, so that critical CARES Act work 
could be readily accomplished. Employees involved in the 
selection or hiring of contractors have also received guidance 
on the criminal conflict of interest statute, 18 U.S.C. 208, 
and the impartiality provisions of the Standards of Ethical 
Conduct for Employees of the Executive Branch, 5 CFR part 2635, 
subpart E.

Q.12. How is the Treasury Department prohibiting or addressing 
conflicts arising in the management, administration, or 
distribution of funds, grants, loans, loan guarantees, or other 
investments authorized under Section 4003 of the CARES Act?

A.12. All Treasury employees who work on CARES Act 
implementation duties, including under Section 4003, are 
expected to comply with the criminal conflicts of interest 
statute, the Standards of Ethical Conduct, the Ethics Pledge 
(as applicable), and other ethics laws and regulations.
    Department ethics officials have educated employees on the 
need to remain vigilant for potential conflicts arising from 
new or expanded duties and have provided individual ethics 
advice to employees. Treasury ethics officials remain as a 
resource to employees on all ethics matters.

Q.13. Please describe any post-employment restrictions or 
guidelines beyond 18 U.S.C. 207 the Treasury Department is 
implementing to safeguard against conflicts and to ensure 
Treasury Department employees and officials are administering 
the CARES Act without regard to future employment 
opportunities.

A.13. The Department has not issued restrictions or guidance 
beyond 18 U.S.C. 207 and the Ethics Pledge with respect to 
post Federal employment activities. Employees seeking or 
negotiating for non-Federal employment, or who otherwise have 
an arrangement concerning prospective employment, must abide by 
the recusal and other requirements in the conflicts statute, 18 
U.S.C. 208, the Standards of Ethical Conduct, 5 CFR part 2635, 
subparts D and F, and the STOCK Act.

Q.14. After your term as Secretary, will you commit not to work 
for--or accept compensation from--any company with which you 
made a loans, loan guarantee, and other investment authorized 
under Section 4003 of the CARES Act?

A.14. After my term as Secretary, I will abide by the 
restrictions in 18 U.S.C. 207 and the Ethics Pledge.

Q.15. Will you commit to not make any loans, loan guarantee, 
and other investment authorized under Section 4003 of the CARES 
Act to any company with which you have a personal financial 
interest?

A.15. During my term as Secretary, I will abide by all 
applicable ethics laws and regulations, the terms of my Ethics 
Agreement, and the conflicts of interest provisions of the 
CARES Act. I will seek guidance from Treasury ethics officials 
should any potential conflict of interest arise.

Q.16. Lobbying--Will you commit to monthly, public disclosures 
of all lobbying related to CARES Act spending or lending?

A.16. Treasury has been following and will continue to follow 
applicable law regarding contact with the public related to the 
CARES Act.

Q.17. Please provide a list of all lobbying contacts between 
any political appointee at the Treasury Department and any 
company seeking funds or loans made available under the CARES 
Act, including:
    Date of contact,
    Names of Treasury Department officials receiving the 
contact,
    Name of entity making the contact, and
    Any electronic or physicals documents or communications 
related to such lobbying contacts.

A.17. Treasury has been following and will continue to follow 
applicable law regarding contact with the public related to the 
CARES Act.

Q.18. Will you commit to restrict any future CARES Act-related 
lobbying activity to public, written submissions and prohibit 
closed door meetings and phone calls between Treasury 
Department officials and companies seeking relief (beyond 
general policy clarification)?

A.18. Treasury has been following and will continue to follow 
applicable law regarding contact with the public related to the 
CARES Act.

Q.19. Whistleblowers and Other Issues--Will you commit to take 
no retaliatory action against any whistleblowers at the 
Treasury Department (including any contractors or employees of 
contractors) who attempt to report waste, fraud, corruption, or 
abuse or be victims of misconduct?

A.19. The Department is aware of its responsibilities under the 
Whistleblower Protection Act and other relevant laws and takes 
its compliance obligations seriously.

Q.20. How will you ensure that taxpayer money received by 
companies won't be shifted into tax havens, eroding our tax 
base and further deepening our debt?

A.20. Treasury is administering the programs Congress provided 
for under the CARES Act in a manner consistent with the text of 
the statute, which was the result of earnest bipartisan 
negotiations that resulted in overwhelmingly bipartisan support 
in both the House and the Senate.

Q.21. Student Loans--The Department of Education has been 
subject to scrutiny by members of congress and litigation 
brought by individual borrowers due to its repeated illegal 
garnishment of student loan borrowers' wages in violation of 
the CARES Act. \1\ The Treasury Department, as the 
administrator of the Debt Collection Improvement Act and the 
Treasury Offset Program, as well as the recipient of all funds 
collected through Administrative Wage Garnishment (AWG), has 
played a key role in this scandal. Please answer the following 
questions regarding the status of borrowers and their debts as 
of March 13, 2020, broken down by account assigned to each 
private collection agency:
---------------------------------------------------------------------------
     \1\  https://www.booker.senate.gov/news/press/sen-booker-rep-
pressley-lead-colleagues-in-rebuking-administration-for-unlawful-wage-
garnishment
---------------------------------------------------------------------------
    How many borrowers were under an AWG order when the stop 
collections order went into effect? Please provide demographic 
breakdowns by the State, county, age, race, and gender of 
borrowers.
    How many borrowers were making payments under AWG when the 
stop collections order went into effect? Please provide 
demographic breakdowns by State, county, age, race and gender 
of borrowers.
    What was the total debt volume of these borrowers under an 
AWG order when the stop collections order went into effect?
    What was the average dollar amount garnished from 
borrowers' wages (please provide this amount per month and per 
pay period, if available) under the AWG orders then in effect?

A.21. The Department of Education manages all aspects of AWG to 
collect its student loans. Fiscal Service does not conduct AWG 
to collect the Department of Education's student loan debts and 
has no information on which student loan borrowers are subject 
to wage garnishment.

Q.22. Please provide a week-by-week analysis of the following 
question about the total amount of money collected through an 
AWG order after the stop collections order went into effect, 
beginning March 13, 2020 through the date these responses are 
provided [broken up by accounts assigned to each private 
collection agency]:
    What is the total amount of payments that have been 
received by the Department of Treasury under an AWG order since 
the stop collections order began?
    What is the total number of borrowers that the Department 
of Treasury has received garnished wages from since the stop 
collections order began?

A.22. Fiscal Service does not conduct AWG to collect student 
loan debts and has no information regarding payments received 
as a result of the Department of Education garnishing wages.

Q.23. According to the Department of Education's FAQs published 
on April 1, 2020, borrowers who have had their wages improperly 
garnished after March 13, 2020 will see a refund of those 
monies. Please provide a week-by-week analysis of the following 
questions about refunds returned to borrowers by the Department 
of Treasury as a result of improper garnishments after the stop 
collection order, beginning March 13, 2020 through the date 
these responses are provided [broken up by private collection 
agencies]:
    How many borrowers were issued refunds?
    What was the total dollar amount of refunds issued to 
borrowers?
    What is the average time it took for each refund to be 
issued after the Department of Education received payments made 
by employers?
    How many borrowers have claimed their refunds either 
through a deposited check or direct deposit into a bank 
account?
    What is the number of borrowers and the total dollar amount 
of unclaimed refunds issued to borrowers?

A.23. Federal agencies determine if any funds in their 
possession need to be refunded. Fiscal Service's role in the 
process is limited to disbursing any such funds pursuant to the 
certification that the Federal agency provides when it requests 
disbursement. In that capacity, Fiscal Service has limited 
information regarding the underlying purpose for the payment 
and has no means of determining whether a certified payment is 
for the purpose of refunding monies. Only the Department of 
Education can provide information regarding any refunds it has 
made.

Q.24. Please provide any guidance the Department of Treasury 
has provided to the Department of Education and/or employers 
regarding the suspension of AWG?

A.24. Fiscal Service conducts AWG and other debt collection 
actions on behalf of several Federal agencies through its 
Cross-Servicing Program. The Department of Education does not 
refer debts to the Cross-Servicing Program, and Fiscal Service 
has provided no guidance to it regarding suspension of AWG. 
With regard to other Federal agencies, Fiscal Service has 
advised that it will suspend all collection tools, to include 
AWG, if a Federal agency makes its own independent 
determination that it has the authority to suspend the laws and 
regulations governing collection of its debts, including the 
relevant portions of the Federal Claims Collection Standards 
(31 CFR Parts 900-904).

Q.25. Climate Change--Earlier this year, the Canadian 
government announced a program to provide financing for 
businesses in response to the ongoing novel coronavirus 2019 
disease (COVID-19) pandemic. As one of the conditions for 
receiving funds, Canada is requiring that companies receiving 
assistance under this program ``commit to publish annual 
climate-related disclosure reports consistent with the 
Financial Stability Board's Task Force on Climate-related 
Financial Disclosures, including how their future operations 
will support environmental sustainability and national climate 
goals.'' \2\
---------------------------------------------------------------------------
     \2\ Justin Trudeau, Prime Minister of Canada, ``Prime Minister 
announces additional support for businesses to help save Canadian 
jobs'', press release, May 11, 2020, https://pm.gc.ca/en/news/news-
releases/2020/05/11/prime-minister-announces-additional-support-
businesses-help-save.
---------------------------------------------------------------------------
    Despite the significant economic impacts of the climate 
crisis, \3\ ``U.S. regulators have been slow to respond to the 
threats that a warming planet can pose to financial assets.'' 
\4\ Would you support requiring major corporations to disclose 
climate-related risks so investors and the public can 
accurately assess climate-related threats as a condition for 
receiving Federal bailout funds?
---------------------------------------------------------------------------
     \3\ New York Times, ``Climate Change's Giant Impact on the 
Economy: 4 Key Issues,'' Neil Irwin, January 17, 2019, https://
www.nytimes.com/2019/01/17/upshot/how-to-think-about-the-costs-of-
climate-change.html; Brookings Institution, ``Ten facts about the 
economics of climate change and climate policy,'' Ryan Nunn, Jimmy 
O'Donnell, Jay Shambaugh, Lawrence Goulder, Charles Kolstad, and 
Xianling Long, October 23, 2019, https://www.brookings.edu/research/
ten-facts-about-the-economics-of-climate-change-and-climate-policy/.
     \4\ Reuters, ``U.S. regulator homes in on climate risks to U.S. 
markets,'' Ann Saphir, December 11, 2019, https://www.reuters.com/
article/us-climate-change-market-risks/u-s-regulator-homes-in-on-
climate-risks-to-u-s-markets-idUSKBN1YF2D5.

A.25. Treasury is administering the programs Congress provided 
for under the CARES Act in a manner consistent with the text of 
the statute, which was the result of earnest bipartisan 
negotiations that resulted in overwhelmingly bipartisan support 
in both the House and the Senate. With respect to the CARES Act 
programs that Treasury administers, Treasury is committed to 
ensuring that participating businesses comply with all of their 
---------------------------------------------------------------------------
statutory reporting requirements.

Q.26. Recent studies estimate that climate change may cause 
``permanent damage that would far eclipse the scale of the 
2007-2008 financial crisis.'' \5\ A 2018 report by 13 Federal 
agencies also found that without significant climate action, as 
much as ten percent of the American economy may be wiped out by 
2100. \6\ Additionally, a separate report argued climate change 
may lead to tens of trillions of dollars in global damages and 
will ``universally hurt worker health and productivity.'' \7\ 
Meanwhile, the Trump administration has exacerbated the climate 
crisis by weakening safeguards on air pollution, emissions, 
fossil fuel extraction, and more. \8\ According to government 
data, these changes may cause thousands of more premature 
deaths across the country. \9\
---------------------------------------------------------------------------
     \5\ Center for American Progress, ``Climate Change Threatens the 
Stability of the Financial System,'' Gregg Gelzinis and Graham Steele, 
November 21, 2019, https://www.americanprogress.org/issues/economy/
reports/2019/11/21/477190/climate-change-threatens-stability-financial-
system/.
     \6\ New York Times, ``U.S. Climate Report Warns of Damaged 
Environment and Shrinking Economy,'' Coral Davenport and Kendra Pierre-
Louis, November 23, 2018, https://www.nytimes.com/2018/11/23/climate/
us-climate-report.html; U.S. Global Change Research Program, ``Fourth 
National Climate Assessment,'' November 23, 2018, https://
nca2018.globalchange.gov/.
     \7\ Moody's Analytics, ``The Economic Implications of Climate 
Change,'' Chris Lafakis, Laura Ratz, Emily Fazio, and Maria Cosma, June 
2019, https://www.moodysanalytics.com/-/media/article/2019/economic-
implications-of-climate-change.pdf.
     \8\ New York Times, ``The Trump Administration Is Reversing Nearly 
100 Environmental Rules. Here's the Full List.,'' Nadja Popovich, Livia 
Albeck-Ripka, and Kendra Pierre-Louis, May 6, 2020, https://
www.nytimes.com/interactive/2020/climate/trump-environment-
rollbacks.html.
     \9\ New York Times, ``Cost of New E.P.A. Coal Rules: Up to 1,400 
More Deaths a Year,'' Lisa Friedman, August 21, 2018, https://
www.nytimes.com/2018/08/21/climate/epa-coal-pollution-deaths.html.
---------------------------------------------------------------------------
    News reports show that you have ``cast doubt about climate 
policies that [you believe] could inhibit growth and under 
[your] watch the Treasury Department has rejected policies. to 
fight climate change'' and that during your tenure, ``the Trump 
administration has systematically disengaged the Treasury 
Department from all aspects of addressing climate change.'' 
\10\ Additionally, while you have been Treasury Secretary, the 
Administration ``eliminated the agency's Office of Environment 
and Energy, reassigning its staff elsewhere within the Treasury 
Department.'' \11\
---------------------------------------------------------------------------
     \10\ New York Times, ``Finance Ministers Grapple Over Economic 
Threat of Climate Change,'' Alan Rappeport and Lisa Friedman, February 
23, 2020, https://www.nytimes.com/2020/02/23/us/politics/g20-climate-
change.html.
     \11\ Id.
---------------------------------------------------------------------------
    Please describe how the Treasury Department is 
incorporating climate-related economic risks in financial 
regulations. Please describe how the Trump administration's 
rollbacks of environmental regulations are affecting economic 
and financial stability.
    Please describe the rationale for eliminating the Office of 
Environment and Energy. Please describe how the Treasury 
Department is meeting the functions of the Office of 
Environment and Energy after its elimination.

A.26. Treasury is not a financial regulator and therefore is 
unable to incorporate climate-related economic risks in 
financial regulations.

Q.27. In the third quarter of 2019, oil and gas companies were 
responsible for 91 percent of defaulted U.S. corporate debt. 
\12\ Thirty-seven oil companies received over $1.9 billion in 
tax benefits by using a provision in the Coronavirus Aid, 
Relief, and Economic Security (CARES) Act. For example, 
Marathon received a $411 million benefit, and Occidental 
expects to receive $195 million because of a carryback 
provision. \13\
---------------------------------------------------------------------------
     \12\ New York Times, ``Coronavirus May Kill Our Fracking Fever 
Dream,'' opinion, Bethany McLean, April 10, 2020, https://
www.nytimes.com/2020/04/10/opinion/sunday/coronavirus-texas-fracking-
layoffs.html.
     \13\ Bloomberg, ``1A`Stealth Bailout' Shovels Millions of Dollars 
to Oil Companies'', Jennifer Dlouhy, May 15, 2020, https://
www.bloomberg.com/news/articles/2020-05-15/-stealth-bailout-shovels-
millions-of-dollars-to-oil-companies?sref=L459Uwzi.
---------------------------------------------------------------------------
    How will the Department of the Treasury ensure the long-
term stability of the U.S. energy and financial systems?

A.27. In April, at the direction of the President, Secretary 
Mnuchin and Energy Secretary Brouillette began working together 
to consider ways in which to support the oil and gas sector and 
the many thousands of hardworking Americans it employs. 
Although the U.S. energy industry is of critical and strategic 
importance to the U.S. economy, and U.S. energy independence is 
a key policy priority of the Administration, Secretary Mnuchin 
was clear in stating that any such support must not be a 
``bailout'' and-unless specifically directed otherwise by 
Congress-should be available under terms that are consistent 
with the CARES Act and broadly applicable to all businesses and 
industries across the U.S. economy.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ
                     FROM STEVEN T. MNUCHIN

Q.1. I have heard reports that small businesses in Hawaii are 
cancelling their PPP loans because the rules that the SBA and 
Treasury imposed have undermined the usefulness of these loans. 
By requiring that 75 percent of PPP funds go to payroll, small 
businesses in high cost cities like Honolulu can't cover their 
rent with the remaining 25 percent of the funds. Without the 
ability to pay their rent, they can't stay in business. This 75 
percent requirement is an arbitrary one-size-fits-all standard 
that works against the purpose of the program of helping small 
businesses stay in business.
    Will you consider removing that new requirement of the 
program?

A.1. Treasury has posted to its website a series of documents, 
including interim final rules that implement the PPP, a set of 
frequently asked questions, fact sheets, program reports, and 
other documents to address specific lender and borrower 
questions about eligibility and the application and forgiveness 
process, among other topics. This includes guidance to reflect 
the PPP Flexibility Act's amendments to the PPP, including by 
lowering the requirements that 75 percent of a borrower's loan 
proceeds must be used for payroll costs and that 75 percent of 
the loan forgiveness amount must have been spent on payroll 
costs to 60 percent for each of these requirements. If a 
borrower uses less than 60 percent of the loan amount for 
payroll costs during the forgiveness covered period, the 
borrower will continue to be eligible for partial loan 
forgiveness, subject to at least 60 percent of the loan 
forgiveness amount having been used for payroll costs. Treasury 
and the SBA will continue to provide additional guidance, as 
appropriate, to help small businesses and other eligible 
borrowers get the assistance they need.

Q.2. According to a Census survey, a third of small businesses 
think it will take longer than 6 months for their businesses to 
recover. And Fed Chair Powell has said it could take a year for 
the economy to gain momentum again. While the CARES Act 
envisioned that any outstanding PPP loans could be repaid over 
a ten-year period, Treasury and the SBA set the term at two 
years.
    Do you think 2 years may be too short given the likelihood 
that some industries may take longer to recover? (For example, 
travel, tourism, live events, etc. may take much longer to 
recover)
    Would you consider lengthening the repayment period, 
particularly for businesses in particularly hard-hit 
industries?

A.2. Treasury has posted to its website a series of documents, 
including interim final rules that implement the PPP, a set of 
frequently asked questions, fact sheets, program reports, and 
other documents to address specific lender and borrower 
questions about eligibility and the application and forgiveness 
process, among other topics. This includes guidance to reflect 
the PPP Flexibility Act's amendments to the PPP, including by 
increasing to five years the maturity of PPP loans that are 
approved by SBA (based on the date SBA assigns a loan number) 
on or after June 5, 2020.

Q.3. Treasury and the SBA also imposed a requirement that 
businesses expend their PPP loan as soon as it is disbursed, 
rather than allowing businesses to choose their 8-week period, 
as long as it ended before June 30th. As a result, small 
businesses that had already laid off their workers scrambled to 
rehire people as soon as their loan was disbursed. If they had 
trouble finding people to rehire, they are now stuck with an 
unforgivable loan. If they were able to rehire people, they 
will have to lay off these workers again because economic 
activity will not sustain full payrolls by the time the 8-week 
period is up.
    Will you consider loosening this requirement to provide 
small businesses with more flexibility to use their PPP loans 
in the way that helps them the most?

A.3. Treasury has posted to its website a series of documents, 
including interim final rules that implement the PPP, a set of 
frequently asked questions, fact sheets, program reports, and 
other documents to address specific lender and borrower 
questions about eligibility and the application and forgiveness 
process, among other topics. This includes guidance to reflect 
the PPP Flexibility Act's amendments to the PPP, including by 
extending the covered period for loan forgiveness from eight 
weeks after the date of loan disbursement to 24 weeks after the 
date of loan disbursement, providing substantially greater 
flexibility for borrowers to qualify for loan forgiveness. 
Borrowers who have already received PPP loans retain the option 
to use an 8-week covered period.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
           SENATOR VAN HOLLEN FROM STEVEN T. MNUCHIN

Q.1. Secretary Mnuchin, on May 1, I sent a letter to you and 
Administrator Carranza to issue guidance on forgiveness and 
also issue a step-by-step guide for borrowers. Without a 
clearly defined timeline and process for repayment of the loan, 
small business owners and nonprofit organizations do not have 
the information necessary to make informed financial decisions 
for their businesses or organizations. I have heard from small 
businesses owners and nonprofit organizations in Maryland who 
have decided to forgo desperately needed assistance because 
they do not have this important information.
    You recently issued an 11-page application that PPP 
borrowers have to fill out to apply for loan forgiveness. I am 
concerned however, that the length of this application is too 
long, especially for borrowers who took out small loans? I am 
also concerned that you have yet to issue formal guidance on 
forgiveness. Are you planning on streamlining this application? 
When do you plan to issue formal guidance?

A.1. SBA published an EZ version of the forgiveness application 
that requires fewer calculations and less documentation for 
eligible borrowers. In addition, Treasury has posted to its 
website a series of documents, including interim final rules 
that implement the PPP, a set of frequently asked questions, 
fact sheets, program reports, and other documents to address 
specific lender and borrower questions about eligibility and 
the application and forgiveness process, among other topics. 
This includes guidance to reflect the PPP Flexibility Act's 
amendments to the PPP to, among other things, extend the 
covered period for loan forgiveness to 24 weeks after the date 
of loan disbursement and to lower the percentage of a 
borrower's PPP loan proceeds that must be used for payroll 
costs. This also includes a set of frequently asked questions 
on loan forgiveness. Treasury and the SBA will continue to 
provide additional guidance, as appropriate, to help small 
businesses and other eligible borrowers get the assistance they 
need.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
          SENATOR CORTEZ MASTO FROM STEVEN T. MNUCHIN

Q.1. According to Treasury Guidance and FAQ so far, the use of 
disbursements will not be subject to other reporting that is 
normally requires such as The Federal Funding Accountability 
and Transparency Act (FFATA) reporting. However, States have 
not seen specific guidance for documentation or reporting for 
auditing and management. States have been informed that the 
Treasury's Inspector General is involved in determining this 
exemption.
    When can States expect to see this type of guidance?

A.1. On July 2, 2020, the Treasury Office of the Inspector 
General (OIG) released guidance pertaining to the CRF Reporting 
and Record Retention Requirements, which was supplemented on 
August 29, 2020, with Frequently Asked Questions. We understand 
that the Office of Management and Budget expects to have the 
final addendum to the 2020 Compliance Supplement published in 
the Federal Register by October 31, 2020, which will include 
the compliance requirements that auditors need to test and 
report on for the CRF.
    The Treasury guidance is clear that revenue replacement is 
not an eligible use of funds for State and local governments. 
However, the guidance included a section that said payments may 
be used for economic support in the absence of a stay-at-home 
order if deemed necessary by the State. Included was an example 
of a grant program to assist small businesses that close in 
order to promote social distancing or small businesses that 
have reduced customer demand as a result of the COVID-19 public 
health emergency.

Q.2. To what extent the grant would be essentially replacing 
lost revenue for private businesses?

A.2. Revenue replacement of governments is not permitted given 
the statutory requirement that expenditures covered with 
payments from the Fund have not been accounted for in the most 
recently adopted budget. This requirement does not relate to 
small business subrecipients of payments from the Fund.

Q.3. Can you clarify whether assisting small businesses like 
this would qualify as an eligible expense?

A.3. Assistance may be provided to small businesses as long as 
that assistance complies with Treasury's guidance and is used 
for permissible expenditures detailed in the CRF guidance.

Q.4. I led the Nevada Delegation in writing a letter requesting 
the Treasury Department and the Federal Reserve to prioritize 
loans to businesses uniquely impacted by COVID-19. In Nevada, 
our economy relies on our hospitality, gaming, and tourism 
employers, and we want to ensure industries bearing the brunt 
of the crisis be aided in order to stabilize the marketplace 
and preserve American jobs. At the encouragement of the Nevada 
delegation and other congressional partners, the SBA reversed 
its previously issued guidance to allow for businesses with 
gaming revenue to apply for PPP.
    Can you commit that otherwise eligible gaming business, 
continue to be eligible for the Main Street lending program, 
like the SBA PPP program now allows?

A.4. The Main Street Lending Program has used the borrower 
eligibility criteria as modified and clarified by SBA 
regulations for purposes of the PPP issued on or before April 
24, 2020, which include businesses with legal gaming revenue. 
Additionally, the Secretary has exercised his authority under 
section 4003(c)(3)(A)(iii) of the CARES Act to grant a waiver 
from the dividend prohibition in section 4003(c)(3)(A)(ii)(II) 
of the CARES Act to permit a tribal business, the ownership 
interests of which are wholly or majority owned by one or more 
tribal governments, to pay dividends or make equivalent capital 
distributions to its tribal government owners. This waiver may 
help facilitate Main Street borrowing by tribal gaming 
businesses.

Q.5. Chairman Jerome Powell spoke about the difference in 
interventions to handle liquidity problems versus those due to 
insolvency. For firms where a loan program does not address a 
pending insolvency threat, are there warrants or equity stakes 
that the government can take in a business to keep it solvent 
while ensuring the taxpayers get repaid? If so, how would those 
warrants be structured?

A.5. The Main Street Lending Program offers loans to small and 
medium-sized businesses and nonprofit organizations that were 
in sound financial condition before the COVID-19 pandemic and 
have solid post-pandemic prospects to help them maintain 
operations until the economy recovers. The program offers a 
range of secured and unsecured senior loan options for 
borrowers that meet minimum criteria and bank underwriting 
standards. Eligible borrowers must certify that they do not 
expect to enter into bankruptcy within the 90 days of taking a 
Main Street loan. If Main Street borrowers require a 
restructuring or workout, the Main Street Special Purpose 
Vehicle may agree to reductions in interest (including 
capitalized interest), extended amortization schedules and 
maturities, and higher priority ``priming'' loans. Main Street 
loans are full-recourse loans and are not forgivable. Under 
section 4003(d)(3) of the CARES Act, the principal amount of a 
Main Street loan cannot be reduced through loan forgiveness. In 
addition, under Federal Reserve regulations, the Federal 
Reserve cannot provide financing based upon equity stakes.

Q.6. If funds were provided as grants to businesses, what do 
you recommend firms provide in return? Would retaining 
employment, staying current with taxes and rent and any debt 
obligations to appropriate conditions for a grant or equity 
stake?

A.6. Funds provided under CARES Act section 4003 take the form 
of loans, loan guarantees, and other investments, and may not 
be forgiven (section 4003(d)(3)). However, loans, loan 
guarantees, and other investments under sub-sections 
4003(b)(1), (2), and (3) require that the U.S. government 
receive a warrant, equity instrument, or senior debt instrument 
for the benefit of taxpayers (section 4003(d)(1)). Businesses 
receiving such funds are subject to restrictions on stock 
buybacks and payment of dividends and other capital 
distributions, may not reduce employment levels by more than 10 
percent from the levels on March 24, 2020, and must be U.S. 
businesses with significant operations in and a majority of 
their employees based in the United States (section 
4003(c)(2)). Note that funds provided under CARES Act section 
4003(b)(4), including the Main Street Lending Program, are made 
available through programs or facilities established by the 
Federal Reserve, which does not make grants or take equity 
stakes.

Q.7. Does the Treasury Department plan to provide one-time or 
ongoing assistance to companies through its programs?

A.7. The Federal Reserve's Main Street Lending Program offers 
medium-term loans to small and medium-sized businesses and 
nonprofit organizations that were in sound financial condition 
before the COVID-19 pandemic to help maintain their operations 
until the economy recovers. Borrowers may borrow multiple loans 
in any one of the facilities that cumulatively amount to the 
aggregate limit of the facility. Main Street will accept loan 
participations through the end of the year.

Q.8. What are you doing to build on the experience with other 
industry-specific initiatives to help bus carriers? Are bus 
companies able to access capital from CARES programs?

A.8. The Main Street Lending Program offers loans to all types 
of small and medium-sized businesses that meet the eligibility 
criteria, including the motor coach industry, to help maintain 
their operations until the economy recovers. This includes 
motor coach businesses that were in sound financial condition 
before the COVID-19 pandemic and have solid post-pandemic 
prospects. Following the submission of over 3,500 public 
comments representing a diversity of stakeholders, the Federal 
Reserve amended the program's initial terms to expand the 
available loan options as well as the pool of businesses 
eligible to borrow. The changes to the Main Street Lending 
Program were designed to allow an even wider range of American 
companies and industries to access the program in order to help 
support their workers and operations.

Q.9. Congress expects the Federal Reserve to release names and 
other information about participants in the facilities it set 
up in response to the CARES Act. I appreciate the steps that 
the Federal Reserve has already taken to increase transparency, 
such as disclosing borrowers, amount borrowed and what rate of 
interest, and the overall costs, revenues, and fees from 
various facilities on a monthly basis.
    How will you guard against any favoritism or unfairness in 
access or terms?

A.9. The Main Street Lending Program purchases loan 
participations of eligible borrowers that meet the minimum 
criteria and the underwriting criteria of the eligible lenders 
that have underwritten the loan. All borrowers and lenders are 
required to certify their compliance with the conflict of 
interest provisions in section 4019 of the CARES Act, and 
lenders are also subject to various statutory and regulatory 
requirements aimed at preventing favoritism and unfairness.

Q.10. Does the Treasury plan to release disclosures for other 
programs not directly authorized under the CARES Act?

A.10. Treasury will continue to work to ensure they fulfill 
their statutory reporting requirements, and will continue 
administering the programs Congress provided for under the 
CARES Act in a manner consistent with the text of the statute, 
which was the result of earnest bipartisan negotiations that 
resulted in overwhelmingly bipartisan support in both the House 
and the Senate.

Q.11. The CARES Act prohibited companies that receive support 
through the Federal Reserve programs that make direct loans 
from paying dividends or buying back their own stock until 12 
months after the loan is repaid. The CARES Act also imposes 
limits on executive compensation for companies that receive 
direct loans.
    What is your oversight plan to ensure that no dividends are 
paid or stocks are purchased and that executive compensation is 
capped as Congress intended?

A.11. Under the Main Street Lending Program, Eligible Borrowers 
must undertake to comply with the restrictions on dividends, 
stock repurchases and compensation. A material breach of these 
undertakings would trigger acceleration of the Main Street 
loan.

Q.12. The CARES Act permitted the Treasury Department to waive 
restrictions on dividends, stock buybacks and executive 
compensation. If you waive those prohibitions and limitations 
for specific companies, how--and how quickly--will you let 
Congress know?

A.12. For the Main Street Lending Program, the Secretary 
exercised his authority under section 4003(c)(3)(A)(iii) of the 
CARES Act to grant a waiver from the dividend prohibition in 
section 4003(c)(3)(A)(ii)(II) to permit a tribal business, the 
ownership interests of which are wholly or majority held by one 
or more tribal governments, to pay dividends or make equivalent 
capital distributions to its tribal government owners. The term 
``tribal government'' as used in this Frequently Asked Question 
(FAQ) refers to a federally or State recognized Indian tribe 
and does not include Alaska Native corporations. The Secretary 
immediately notified the committees specified in section 
4003(c)(3)(A)(iii), and any future waivers will be notified in 
the same manner.

Q.13. The CARES Act restricts Fed financing to ``businesses 
that are created or organized in the United States or under the 
laws of the United States and that have significant operations 
in and a majority of its employees based in the United 
States.''
    Will you ensure that any company that receives financing is 
a U.S.-based company?

A.13. All recipients of funds under section 4003 of the CARES 
Act must certify that they are created or organized in the 
United States or under the laws of the United States, and have 
significant operations in and a majority of their employees 
based in the United States. The proceeds of a Main Street loan 
may not be used for the benefit of the borrower's foreign 
parents, affiliates or subsidiaries, if any.

Q.14. Will you prohibit aid to companies that may have 
undergone a tax inversion before, changed its incorporation to 
the U.S. recently, or is a U.S. subsidiary of a foreign 
company?

A.14. Under the Main Street Lending Program, a borrower may be 
a subsidiary of a foreign company, provided that the borrower 
itself is created or organized in the United States or under 
the laws of the United States, and on a consolidated basis has 
significant operations in and a majority of its employees based 
in the United States. However, a Main Street borrower that is a 
subsidiary of a foreign company must use the proceeds of a Main 
Street loan only for the benefit of the borrower, its 
consolidated U.S. subsidiaries, and its other affiliates that 
are U.S. businesses. The proceeds of a Main Street loan may not 
be used for the benefit of any borrower's foreign parents, 
affiliates, or subsidiaries.

Q.15. Will Treasury require disclosure of beneficial owners in 
order to prevent shell structures?

A.15. Main Street Lending Program lenders require 
identification of beneficial owners under existing anti-money 
laundering and know your customer rules. In addition, in order 
to certify their compliance with the conflict of interest 
provisions of CARES Act section 4019, borrowers are required to 
determine the beneficial owner of any 5 percent or greater 
equity interest in the borrower.

Q.16. I am disappointed by Treasury's handling of tribal 
financial data. These are some of the hardest hit communities, 
with the most limited capacity to respond to economic 
emergencies. Instead of acting expeditiously to get CARES Act 
funding out the door, Treasury missed the statutory deadline to 
distribute that money, and leaked sensitive financial 
information in the process. I'd like to understand why this 
happened, and what plans Treasury has to ensure it doesn't 
happen again.
    Who did Treasury share the Tribal data with?

A.16. When determining the methodology for distribution of CRF 
funds to tribal governments, Treasury shared data with those 
essential to carrying out the disbursement of CRF funds within 
their official duties.

Q.17. For what purposes did the department share that data with 
them?

A.17. Treasury shared data only with those essential to 
carrying out the disbursement of CRF funds within their 
official duties.

Q.18. What kinds of safeguards does Treasury normally have for 
handling sensitive or potentially proprietary data?

A.18. As always, Treasury endeavors to protect sensitive or 
potentially proprietary data.

Q.19. Why did Treasury ask for these specific data points, 
since it appears that they are even going to use the answers 
for their CRF formula?

A.19. Treasury requested many data points from tribes with the 
intention of determining how to distribute CRF funds.

Q.20. It's imperative that Treasury provide tribes across the 
country with the supports they need to take full advantage of 
the CARES Act resources. These are some of the hardest hit 
communities, with the most limited capacity to respond to 
economic emergencies.
    Has the Department heard from any Tribes with concerns 
about needing guidance on allowable uses? How is the Department 
helping with those requests? Are there any ideas from Tribes 
that the Department has advised would likely be disallowed?

A.20. Treasury has worked closely with tribes throughout the 
application process. Prior to and during the first round of 
funding, Treasury and BIA held two joint tribal consultations 
and provided a written comment period from March 31, 2020, 
through April 13, 2020. Treasury also held discussions with 
Native American associations and tribal financial experts to 
consider a process that would be familiar to tribes, and 
provide verifiable and objective information.

Q.21. Some Tribes have flagged concerns about the requirement 
that all funds be spent by the end of the year, especially in 
view of the potential for future waves of coronavirus.
    Has Treasury heard any similar concerns? Would you be 
willing to work with us to expand the flexibility of tribes to 
spend those dollars outside of this calendar year if need be?

A.21. The CARES Act stipulates that CRF funds must be used for 
unbudgeted expenditures between March 1, 2020 and December 30, 
2020 related to COVID-19. A change in statute is required to 
extend the date.

Q.22. I'm extremely concerned that the course of action 
Treasury and SBA have adopted in the implementation of the 
CARES Act has resulted in the near systematic exclusion of 
Tribes. The decision to apply the gaming revenue prohibition to 
the PPP--which resulted in a majority of Tribal business 
concerns being unable to access the entire first tranche of PPP 
funding. Then, a decision made for the second PPP tranche that 
limited which financial institutions could participate. 
Congress clearly intended for PPP to work more with minority 
serving financial institutions--including Native CDFIs. Because 
Indian Country has significant issues with underbanking, Tribes 
and Native businesses often don't have preexisting 
relationships with mainstream financial institutions. So, this 
agreement was especially important for Indian Country. But, the 
decision was made by the Administration to set a PPP asset 
limit of $50m--which disqualified MOST Native CDFIs and 
effectively shut Native businesses out of the program again. 
The asset threshold was later lowered to $10m, but that still 
excluded the majority of Native CDFIs. The end result, though, 
is there's two rounds of PPP where Tribes have had limited to 
no access because of Administrative decisions.
    How will you make sure that these sorts of administrative 
barriers don't prevent Tribes from accessing COVID-19 economic 
recovery resources moving forward?

A.22. Any U.S. federally insured depository institution is an 
eligible lender under the Main Street Lending Program, and 
gaming businesses have always been eligible for Main Street 
loans. In addition, following extensive outreach to tribes, 
lenders to tribal businesses, and other stakeholders, the 
Secretary granted a waiver allowing Main Street borrowers that 
are wholly or partly owned by tribal governments to pay 
dividends or other capital distributions to their tribal 
government owners, and the Federal Reserve has made clear that 
tribal economic enterprises that do not have legal existence 
apart from the tribes themselves may nevertheless be eligible 
under Main Street. Both of these steps were intended to 
facilitate tribal access to the program.

Q.23. Will you commit to making sure the Administration 
administers COVID-19 programs in a way that ensures the maximum 
possible Tribal inclusion?

A.23. With respect to PPP borrowers, the Secretary shares your 
interest in making the PPP available to as many of America's 
job creators and their employees as feasible. Treasury has 
posted to its website a series of documents, including interim 
final rules that implement the PPP, a set of frequently asked 
questions, fact sheets, and other documents to address specific 
lender and borrower questions about eligibility and the 
application process, among other topics. This includes a SBA 
interim final rule posted on April 24, 2020, providing that a 
business that is otherwise eligible for a PPP loan is not 
rendered ineligible due to its receipt of legal gaming 
revenues.
    With respect to PPP lenders, to further ensure that the PPP 
reached all communities in need of relief during the COVID-19 
pandemic, SBA, in consultation with Treasury, set aside $10 
billion of Round 2 funding to be lent exclusively by CDFIs, in 
addition to the statutory set-asides in the PPP and Health Care 
Enhancement Act of $30 billion for community financial 
institutions and small banks and credit unions and an 
additional $30 billion for banks and credit unions with assets 
between $10 billion and $50 billion. SBA and Treasury also 
considered applications for participation as PPP lenders from 
CDFIs and minority-, women-, veteran-, and military-owned 
lenders based on factors including those described on SBA Form 
3507, including in cases where the lender does not meet all of 
the requirements listed on that form. \1\
---------------------------------------------------------------------------
     \1\ https://www.sba.gov/funding-programs/loans/coronavirus-relief-
options/paycheck-protection-program.
---------------------------------------------------------------------------
    As described in the previous question above, the Secretary 
and the Federal Reserve have already taken steps to facilitate 
tribal access to the Main Street Lending Program, and welcome 
suggestions from stakeholders on how to make the program even 
more inclusive.

Q.24. One concern I have is that our minority-owned businesses, 
because they often lack some of the traditional lending 
relationships, have not been able to access PPP to the extent 
that is needed.
    Will we be getting PPP data on demographics? Or at least be 
able to see how many loans were made in majority-minority 
neighborhoods?

A.24. Treasury and SBA have undertaken extensive and ongoing 
efforts to encourage lending to underserved and rural 
borrowers. These efforts have included recruiting lenders that 
operate in underserved communities to participate in PPP and 
facilitating their approval of PPP loans, as well as educating 
underserved borrowers about the opportunities that exist for 
them through PPP. Guidance was issued to all lenders asking 
them to redouble their efforts to assist eligible borrowers in 
underserved and disadvantaged communities. This was done to 
ensure that individuals, businesses, and other entities in 
underserved and rural markets, including veterans and members 
of the military community, small business concerns owned and 
controlled by socially and economically disadvantaged 
individuals, women, and businesses in operation for less than 2 
years, all benefited from PPP.
    Treasury and SBA have worked closely with Congress, 
regional and community banks, fintech lenders, CDFIs, MDIs, the 
Department of Agriculture, and other stakeholders to ensure 
that as many workers and small businesses as possible can 
readily participate in the opportunities afforded by this 
program, with particular focus on underserved borrowers, 
including minorities, women, and rural entrepreneurs. Treasury 
and SBA extensively recruited lending institutions that 
typically operate in underserved communities to participate as 
PPP lenders. An important focus of our efforts to serve 
underserved communities has been to harness the role of CDFIs 
and MDIs. Hundreds of CDFIs were contacted and advised of their 
eligibility to participate in the PPP. As of August 8, 2020, 
when the PPP closed to new loan applications, 432 CDFIs and 
MDIs had participated and provided 221,000 loans totaling more 
than $16.4 billion. The program has resulted in $106 billion 
provided to businesses in HUBZones, accounting for more than 20 
percent of all PPP funding. Data also show that the loans have 
been broadly distributed and made across diverse areas of the 
economy, with 27 percent of the funds going to low- and 
moderate-income communities, which is in proportion to their 
percentage of the population.
    Treasury and SBA are committed to implementing the CARES 
Act with transparency and accountability. Information regarding 
approved PPP loans and program participation is provided on our 
websites, including data to help inform your and the public's 
understanding of borrower participation, such as the number and 
dollar amount of loans, number of loans by amount, distribution 
by lender size and type, list of top lenders, average loan 
size, and loan distribution across industries and States.
    Additionally, SBA has made additional data regarding PPP 
loans publicly available in a manner that balances the 
interests of transparency with protections for small 
businesses, sole proprietors, and independent contractors. SBA 
disclosed the business names, addresses, NAICS codes, zip 
codes, business types, demographic data, jobs supported, and 
loan amount ranges as follows: $150,000-350,000; $350,000-1 
million; $1-2 million; $2-5 million; and $5-10 million. These 
categories account for nearly 75 percent of the loan dollars 
approved. For loans below $150,000, SBA disclosed the specific 
loan amounts along with NAICS codes, zip codes, business types, 
demographic data, and jobs supported, but no personally 
identifiable borrower information.
    This approach to public disclosure will allow Americans to 
see how their tax dollars are being spent while ensuring that 
America's entrepreneurs and job creators are able to compete 
fairly as our economy safely reopens. Unlike other SBA loans, 
PPP loan amounts are calculated based on payroll data, which 
employers typically treat as commercially sensitive or 
proprietary. In general, a borrower's specific PPP loan amount 
will reveal the borrower's nonpublic payroll information-
including the personal income of independent contractors and 
sole proprietors that received PPP loans.
    In addition to these public disclosures, SBA worked with 
congressional committees and the Government Accountability 
Office to provide full access to all PPP loan-level 
information--including, but not limited to, all borrower names 
and loan amounts--in a manner that afforded appropriate 
confidential treatment for nonpublic personally identifiable 
and commercially sensitive business information.
    Finally, Treasury and SBA are working to gather additional 
information on program participants. The PPP Loan Forgiveness 
Application Form 3508 and Form 3508EZ both request voluntary 
disclosure of veteran status, gender, race, and ethnicity from 
loan recipients. I respectfully refer you to SBA for additional 
information.

Q.25. On Friday, the Treasury and SBA released an 11-page loan 
forgiveness application for the PPP Program with instructions 
for how to complete it. This document provides clarity on a 
number of issues such as when the 8-week forgiveness period 
begins. Oversight of these grants to businesses is essential. 
However, we still do not have detailed guidance on how the 
program will be administered.
    What are the steps for lenders and the SBA to process these 
applications?
    What system(s) are going to be used to transmit this 
information to SBA?
    What role will lenders have in the forgiveness process?
    Can you provide a timeline of development of the guidance?
    Can you provide an update on when clear and full 
forgiveness guidance will be issued for small businesses and 
lenders?
    What can we expect to see in the guidance when it is 
released?
    What will happen in an instance where the statute is 
revised after a borrower has already submitted an application 
for forgiveness? How will those applicants be handled?

A.25. Treasury has posted to its website a series of documents, 
including interim final rules that implement the PPP, a set of 
frequently asked questions, fact sheets, program reports, and 
other documents to address specific lender and borrower 
questions about eligibility and the application and forgiveness 
process, among other topics. This includes guidance to reflect 
the PPP Flexibility Act's amendments to the PPP to, among other 
things, extend the covered period for loan forgiveness to 24 
weeks after the date of loan disbursement and to lower the 
percentage of a borrower's PPP loan proceeds that must be used 
for payroll costs. This also includes a set of frequently asked 
questions on loan forgiveness, as well as a procedural notice 
on procedures for lender submission of PPP loan forgiveness 
decisions to SBA and SBA loan forgiveness reviews. \2\ In 
addition, SBA published an EZ version of the forgiveness 
application that requires fewer calculations and less 
documentation for eligible borrowers. Treasury and the SBA will 
continue to provide additional guidance, as appropriate, to 
help small businesses and other eligible borrowers get the 
assistance they need.
---------------------------------------------------------------------------
     \2\ This includes detail on the financial services technology 
provider that SBA has partnered with to make available a secure SaaS 
platform to accept loan forgiveness decisions, supporting 
documentation, and requests for forgiveness payments.

Q.26. A recent Census report found that three out of four small 
businesses have sought financial assistance through the 
Paycheck Protection Program.
    As you have worked on this program over the last few 
months, what have been the major concerns from the small 
businesses who are not applying to the program?
    What other steps should Congress be looking at to support 
businesses for whom PPP was not the best option?

A.26. The Secretary shares your interest in making the PPP 
available to as many of America's job creators and their 
employees as feasible. Treasury looks forward to working with 
you and your staff as you consider additional enhancements to 
the program.

Q.27. In the summary reports issued for the separate rounds of 
PPP funding, there is a breakdown on the number of 
participating lenders based on their asset size (less than 
$10B, between $10B and $50B, and over $50B). On the Summary for 
the Second Round of funding, there were 148 lenders over $50B 
in assets that participated--yet according to the Fed (as of 
the end of last year), there were only 38 insured institutions 
with consolidated assets over $50B.
    What clarity can you provide on the disparity between these 
two numbers?

A.27. As of August 8, 2020, when the program closed to new loan 
applications, over 5.2 million loans had been approved for more 
than $525 billion to borrowers across America. This includes 
1.7 million loans for more than $190 billion that had been 
approved by 34 lenders with assets over $50 billion.

Q.28. As evidenced by recent DOJ actions, the Paycheck 
Protection Program (PPP) has faced increasing challenges 
associated with fraud. The increasing rates of fraud have 
hindered the program's ability to meet its underlying 
objectives to assist small businesses looking to keep employees 
on their payroll and prevent rising levels of unemployment. The 
program, unwittingly, has created a new avenue for criminals to 
perpetrate their frauds against U.S. consumers and small 
businesses by attempting to disguise emails, websites and other 
communications as coming from legitimate actors or government 
entities, when in reality they are coming from nefarious 
actors. Frequently, the first step in a fraudster's arsenal to 
perpetrate a fraud scheme, such as the schemes that are 
impacting the PPP, is to utilize a malicious VPN or other 
online anonymizing tools such as bots to mask their true 
identity and location. Without sophisticated tools to detect 
the use of such devices, VPNs and such tools will continue to 
enable fraudsters to perpetrate their crimes without leaving a 
trace.
    As the Treasury and the Federal Reserve work to bolster 
these programs and prevent the increased rates of fraud they're 
currently facing, what role will advanced, multisource 
geolocation data play in fostering a more effective ID 
verification and authentication process, to ensure that the PPP 
and similar programs are able to fulfill their intended 
objectives, and that these coveted funds reach the hands of the 
individuals that need them most?

A.28. I respectfully refer you to the SBA for information on 
this issue.

Q.29. The Federal Reserve has used its Section 13(3) authority 
to lend to businesses and local governments and other powers to 
allocate $2.3 trillion of credit through nine programs, backed 
by $215 billion of Treasury funds.
    Do you agree with the Congressional Budget Office estimates 
that the Fed's programs will not increase the Federal deficit, 
because loans that default are likely to be offset by other 
loans repaid with interest that result in a net gain for the 
government?

A.29. The CBO prepares its estimates under its own statutory 
mandate and in a manner that is separate and independent from 
the administration of the 13(3) facilities. At this time 
Treasury has not evaluated CBO's estimates.

Q.30. We are aware of problems facing borrowers of the 
commercial mortgage-backed securities, who are impacted by the 
shutdowns of public spaces.
    Has Treasury examined problems facing commercial mortgage-
backed securities?
    Has Treasury considered using funds to support borrowers of 
CMBS?

A.30. Treasury and the Federal Reserve continue to monitor the 
market impact of the COVID-19 pandemic on commercial real 
estate borrowers, including those whose loans are in commercial 
mortgage-backed securities (CMBS). Treasury continues to work 
with the Federal Reserve to assess the efficacy of existing 
facilities established under the Federal Reserve's 13(3) 
emergency lending authority, and will evaluate appropriate 
changes necessary to promote the flow of credit and support a 
robust economic recovery.

Q.31. Prior to this crisis, the travel industry was coming off 
a decade of growth and many travel businesses were in strong 
financial shape. Now, due to the travel restrictions, business 
closures and quarantines in place across the U.S., travel 
businesses have virtually no customers or revenue. The impacts 
have been catastrophic
    The response by Congress and the Administration has focused 
largely on small businesses, which are absolutely vital to the 
economy. While 83 percent of travel businesses are small 
businesses, more than 50 percent of travel industry workers are 
employed by mid- to large-sized businesses with more than 500 
employees.

A.31. The Main Street Lending Program offers loans to small and 
medium-sized businesses, including in the travel industry, that 
were in sound financial condition before the COVID-19 pandemic 
and have solid post-pandemic prospects to help maintain their 
operations until the economy recovers. The program offers a 
range of secured and unsecured senior loan options for 
borrowers that meet eligibility criteria and bank underwriting 
standards.

Q.32. What type of financial assistance is the Treasury 
planning establish for our Nation's nonprofits, like 
destination marketing organizations, many of which are 
ineligible for programs like PPP under the CARES Act?

A.32. On September 4, the Federal Reserve Bank of Boston 
announced that two new Main Street Lending Program loan 
facilities for nonprofit organizations are fully operational. 
These new facilities are designed to help credit flow to small- 
and medium-sized nonprofit organizations that were in sound 
financial condition prior to the pandemic and have solid post-
pandemic prospects.

Q.33. The Las Vegas Convention and Visitors Authority is a 
quasigovernmental entity that is critical for driving 
visitation to Las Vegas. The Authority's funding, which is tied 
to local occupancy taxes, has plummeted--jeopardizing its 
important mission and forcing it to lay off workers. 
Unfortunately, quasigovernmental entities are unable to obtain 
financial relief.
    What kinds of relief are available for quasigovernmental 
entities?
    Is there are a way to ensure the Coronavirus Relief Fund 
has more flexibility so quasigovernmental entities, like the 
Las Vegas Convention and Visitors Authority, can receive 
assistance?

A.33. Treasury is willing to discuss this issue with you as the 
Department considers further guidance on the use of CRF funds 
for quasigovernmental entities.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
                     FROM STEVEN T. MNUCHIN

Q.1. Economic Impact Payments--As you know, the Internal 
Revenue Service (IRS) has been issuing $1,200 Economic Impact 
Payments to eligible Americans since April, to help them cope 
with the financial effects of the pandemic. However, as of May 
15, 2020, the IRS anticipated that 150 million payments still 
needed to be sent out. There have been projections that it 
could take up to 20 weeks--or 5 months--for all of the paper 
checks to be sent.

A.1. As of September 18, 2020, Treasury and the IRS have issued 
more than 163 million Economic Impact Payments totaling more 
than $273 billion to individuals for whom the IRS has the 
necessary information. The IRS and Fiscal Service accelerated 
the rate of delivery of Economic Impact Payments to many 
eligible Americans by successfully shifting such delivery away 
from paper checks and to:

  1.  Direct deposit through information obtained through the 
        Get My Payment portal and Non-Filers tool on IRS.gov 
        (where the taxpayer can input their bank account 
        information).

  2.  Debit cards (which are funded electronically).

  3.  Bank accounts based on information provided by the Bureau 
        of the Fiscal Service, Social Security Administration, 
        and the Department of Veterans Affairs.

Q.2. 8.4 million households lack a bank account and 20 million 
currently do not have home access to broadband. As a result, 
the majority of recipients of paper checks are those that need 
it most. What are you doing to ensure Economic Impact Payments 
are getting to the most financially vulnerable individuals and 
families in the shortest time frame possible?

A.2. The Treasury Department and the IRS initially prioritized 
mailing checks to people with lower adjusted gross income 
(AGI), starting with individuals with an AGI of less than 
$10,000, then mailed checks to individuals with progressively 
higher AGI amounts. The Treasury Department and the IRS 
continue to conduct a sweeping public awareness campaign to 
share information and details about Economic Impact Payments. A 
significant goal of these outreach efforts is to reach those 
Americans without adequate broadband access to ensure every 
individual who is eligible for an Economic Impact Payment 
receives their payment.

Q.3. Paycheck Protection Program (PPP) --PPP General: Are the 
Treasury and SBA keep track of applicant's approval history for 
PPP loans to see if they were denied a loan with different 
lenders? If so, please provide that information.

A.3. I respectfully refer you to the SBA for more information.

Q.4. Racial Disparity--What is the Treasury Department and SBA 
doing to ensure underserved small businesses in the communities 
hardest hit by COVID-19 are recipients of Federal funds? Please 
be as specific as possible.

A.4. Treasury and SBA have undertaken extensive and ongoing 
efforts to encourage PPP lending to underserved and rural 
borrowers. These efforts have included recruiting lenders that 
operate in underserved communities to participate in PPP and 
facilitating their approval of PPP loans, as well as educating 
underserved borrowers about the opportunities that exist for 
them through PPP. Guidance was issued to all lenders asking 
them to redouble their efforts to assist eligible borrowers in 
underserved and disadvantaged communities. This was done to 
ensure that individuals, businesses, and other entities in 
underserved and rural markets, including veterans and members 
of the military community, small business concerns owned and 
controlled by socially and economically disadvantaged 
individuals, women, and businesses in operation for less than 
two years, all benefited from PPP.
    Treasury and SBA have worked closely with Congress, 
regional and community banks, fintech lenders, CDFIs, MDIs, the 
Department of Agriculture, and other stakeholders to ensure 
that as many workers and small businesses as possible can 
readily participate in the opportunities afforded by this 
program, with particular focus on underserved borrowers, 
including minorities, women, and rural entrepreneurs. Treasury 
and SBA extensively recruited lending institutions that 
typically operate in underserved communities to participate as 
PPP lenders. An important focus of our efforts to serve 
underserved communities has been to harness the role of CDFIs 
and MDIs. Hundreds of CDFIs were contacted and advised of their 
eligibility to participate in the PPP. As of August 8, 2020, 
when the PPP closed to new loan applications, 432 CDFIs and 
MDIs had participated and provided 221,000 loans totaling more 
than $16.4 billion. The program has resulted in $106 billion 
provided to businesses in HUBZones, accounting for more than 20 
percent of all PPP funding. Data also show that the loans have 
been broadly distributed and made across diverse areas of the 
economy, with 27 percent of the funds going to low- and 
moderate-income communities, which is in proportion to their 
percentage of the population.

Q.5. CDFIs and MDIs--Are the Treasury Department and Federal 
Reserve working with CDFIs, including nondepository CDFIs, and 
minority depository institutions to help them navigate the PPP 
and the PPP Lending Facility so that they can have more success 
there? If so, please provide specific steps being taken.

A.5. As noted above, since enactment of the CARES Act, Treasury 
and SBA have worked tirelessly and closely with Congress, with 
borrowers, and with lenders of all sizes-including regional and 
community banks, CDFIs, and MDIs-to ensure the broadest 
possible segment of small businesses can access the PPP and to 
encourage PPP lending to underserved and rural borrowers. 
Treasury and SBA extensively recruited lending institutions 
that typically operate in underserved communities to 
participate as PPP lenders. An important focus of our efforts 
to serve underserved communities has been to harness the role 
of CDFIs and MDIs. For example, hundreds of CDFIs were 
contacted and advised of their eligibility to participate in 
the PPP. Treasury and SBA staff hosted tele-townhall forums 
with trade associations representing CDFI lenders to 
specifically engage with these lenders and understand how to 
better serve their customers in underserved communities. 
Guidance was also issued to all lenders, including CDFIs, 
asking them to redouble their efforts to assist eligible 
borrowers in underserved and disadvantaged communities to 
expand economic opportunity. Treasury and SBA worked with the 
Federal Reserve to establish the Payroll Protection Program 
Liquidity Facility to enable PPP lenders, including both bank 
and nonbank lenders as well as CDFIs and MDIs, to pledge PPP 
loans to the Federal Reserve as collateral for Federal Reserve 
borrowings to enhance lender liquidity and enable PPP lenders 
to expand lending capacity. The availability of this liquidity 
has greatly benefited nonbank and smaller PPP lenders that lend 
to underserved communities and that lend to the smallest 
businesses. And, SBA, in consultation with Treasury, set aside 
$10 billion of Round 2 funding to be lent exclusively by CDFIs 
to further ensure that the PPP reached all communities in need 
of relief during the COVID-19 pandemic. Treasury and SBA 
participated in a roundtable discussion focusing on MDIs' 
experiences as lenders in the PPP, including their work to 
serve small businesses in low- and moderate-income communities. 
As of August 8, 2020, when the PPP closed to new loan 
applications, 308 CDFIs had participated from across the 
country, providing over 114,000 loans for more than $7.5 
billion.

Q.6. Loan Forgiveness--The first PPP loan disbursements were 
more than a month ago, yet Treasury only issued guidance late 
Friday on how companies will qualify and apply for loan 
forgiveness. Manufacturers and other small businesses still 
need clarity so they can ensure they are taking the right steps 
to receive full loan forgiveness--as Congress intended. Can you 
commit to publicly releasing this week additional plain 
language guidance on loan forgiveness procedures for lenders 
and small businesses out there?

A.6. Treasury has posted to its website a series of documents, 
including interim final rules that implement the PPP, a set of 
frequently asked questions, fact sheets, program reports, and 
other documents to address specific lender and borrower 
questions about eligibility and the application and forgiveness 
process, among other topics. This includes guidance to reflect 
the PPP Flexibility Act's amendments to the PPP to, among other 
things, extend the covered period for loan forgiveness to 24 
weeks after the date of loan disbursement and to lower the 
percentage of a borrower's PPP loan proceeds that must be used 
for payroll costs. This also includes a set of frequently asked 
questions on loan forgiveness. In addition, SBA published an EZ 
version of the forgiveness application that requires fewer 
calculations and less documentation for eligible borrowers. 
Treasury and the SBA will continue to provide additional 
guidance, as appropriate, to help small businesses and other 
eligible borrowers get the assistance they need.

Q.7. Safe Harbor--The SBA and Treasury Department recently 
released guidance that small businesses receiving loans for 
less than $2 million will automatically be certified as in 
``good faith.'' I applaud this decision as it will give small 
business owners assurance that the SBA will not audit them 
during this stressful time. Is there a process in place to 
certify ``good faith'' loans that are above $2 million? What is 
the status of the money returned from large corporations during 
the first round? Would you be open to designating those funds 
to go to lending by CDFIs and MDIs so that underserved 
communities benefit from the larger companies returning the 
funds?

A.7. On June 1, the SBA issued an interim final rule describing 
its loan review procedures and related lender and borrower 
responsibilities. Treasury and SBA have also posted guidance on 
frequently asked questions on loan forgiveness, as well as on 
procedures for lenders' submissions of PPP loan forgiveness 
decisions to SBA and SBA loan forgiveness reviews. Treasury and 
SBA will continue to provide additional guidance, as 
appropriate, to help small businesses and other eligible 
borrowers get the assistance they need. Treasury looks forward 
to working with you and your staff as you consider additional 
enhancements to the program. Treasury respectfully refers you 
to SBA for information regarding returned funds.

Q.8. Factoring--I would like to understand why a large number 
of small businesses, called factors, with fewer than 500 
employees have been denied access to PPP loans.
    Factors are being denied on the basis that they are 
considered ``lenders'' under U.S. Code 13 CFR 120.110. Factors 
purchase existing accounts receivable. They do not lend money. 
Further, a recent Federal court decision in Michigan trust 
concluded the exclusion violated the CARES Act.
    Can you please look into this and address the situation or 
explain why factors should not be permitted to participate?

A.8. The Secretary shares your interest in making the PPP 
available and accessible to as many of America's job creators 
and their employees as feasible. Treasury has posted to its 
website a series of documents, including interim final rules 
that implement the PPP, a set of frequently asked questions, 
fact sheets, program reports, and other documents to address 
specific lender and borrower questions about eligibility and 
the application and forgiveness process, among other topics. 
\1\ Treasury and the SBA will continue to provide additional 
guidance, as appropriate, to help small businesses and other 
eligible borrowers get the assistance they need.
---------------------------------------------------------------------------
     \1\ See https://home.treasury.gov/policy-issues/top-priorities/
cares-act/assistance-for-small-businesses.

Q.9. State and Local Governments--The Treasury Department 
issued guidance that States were not allowed to used their 
distribution from the Coronavirus Relief Fund to replace lost 
revenue. Just as stay-at-home ordinances affects businesses' 
revenue, it affects government revenue. Local governments 
across Alabama may be forced to lay off police, firefighters 
and sanitation workers due decreased revenues that they were 
not expecting when approving their budgets.
    Would you support in a Covid-4 package allowing States and 
local governments to use a portion of the Coronavirus Relief 
Fund to cover predetermined expenses like keeping police and 
firefighter on the streets and allowing sanitation workers to 
pick up our garbage? If not, why, given the negative impact the 
repercussions of these layoffs would have on families across 
Alabama and other States?

A.9. While Treasury does not allow for CRF dollars to be used 
in order to supplement lost revenues, it does allow for CRF 
funds to be put towards payroll expenses for public safety, 
public health, health care, human services, and similar 
employees whose services are substantially dedicated to 
mitigating or responding to the COVID-19 public health 
emergency.

Q.10. Commercial Mortgage-Backed Securities (CMBS)--Borrowers 
of commercial mortgage-backed securities, whose properties have 
been shut down by government public safety precautions, are 
under undue significant financial hardship because they stuck 
between tenants that are not paying and mortgage servicers who 
are not offering flexibility. These are owners of hotels, 
shopping centers and certain housing entities. They are 
extremely worried about their ability to meet their financial 
obligations over a protracted time period with no rents coming 
in. There is not a clear regulatory framework for CMBS but the 
concerns remain. What efforts has the Treasury Department taken 
to support those borrowers?

A.10. The Treasury and the Federal Reserve continue to monitor 
the market impact of the COVID-19 pandemic on commercial real 
estate borrowers, including those whose loans are in CMBS. 
Treasury continues to work with the Federal Reserve to assess 
the efficacy of existing facilities established under the 
Federal Reserve's 13(3) emergency lending authority, and will 
evaluate appropriate changes necessary to promote the flow of 
credit and support a robust economic recovery.

Q.11. Mortgage Servicers--As you know, the CARES Act limited 
assistance to only localities with a population that exceeds 
500,000. In Alabama, only Jefferson County met the population 
threshold and the funding allocation is limited to ``necessary 
expenditures incurred due to the public health emergency,''
    At the same time, more that 8 percent of households 
nationwide have entered mortgage forbearance. This means that 
mortgage servicing companies are now responsible for making the 
property taxes, hazard insurance, and homeowners association 
dues, and other assessments for 4.7 million mortgages each 
month.
    These are not an insignificant portion of a borrower's 
monthly payment, accounting for 25 percent to 30 percent 
depending on the State, and the property type. They are also 
vital to the financial stability of my State. Without 
additional Federal assistance to local governments in Alabama, 
I am very concerned about any delays that may occur in 
advancing property taxes payments.
    Have you thought about the risks to cities and counties of 
a liquidity crunch because of any delay or shortfall in State 
and local tax payments due from escrow accounts in the coming 
months? Have you considered standing up a liquidity facility 
now to help mortgage servicers make these property tax and 
insurance advances on behalf of home owners?

A.11. Treasury is actively monitoring the mortgage market and 
the associated impact of COVID-19. We have focused considerable 
resources on delivering support to households and businesses 
struggling as a consequence of the necessary public health 
response. Treasury will continue to work to promote stable 
markets, including for residential mortgage lending.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SMITH
                     FROM STEVEN T. MNUCHIN

Q.1. COVID-19 is having a massive impact on Tribes, first 
because disparities in health and a shortage of safe, stable 
housing mean the virus is more devastating in Tribal 
communities. And second, because Tribes made the decision to 
voluntarily close their enterprises to protect public health, 
they have seen a massive loss of government revenue and also 
big peaks in unemployment.
    Even today, Tribal governments are still fighting to get 
the full $8 billion that Congress intended for them, even as 
Treasury has indicated that it plans to allocate some of this 
money to Alaska Native corporations, which are for profit 
corporations, not Tribal governments.
    It's been over 50 days since the CARES Act passed, and 
still only 60 percent of the $8 billion has been distributed. 
It took Treasury over a month to get a single dollar out the 
door. How do you square these delays with the Federal 
Government's unique trust and treaty responsibilities to Tribal 
nations?

A.1. Treasury has completed making payments to tribal 
governments, other than amounts that have not been paid to 
Alaska Native corporations pending litigation on that issue.

Q.2. Do you agree that Tribal governments, like their State and 
local counterparts, have a unique need for relief funds so they 
can provide essential government services to their members?

A.2. Title V of the CARES Act sought to provide relief to 
State, territorial, local, and tribal governments by covering 
the cost of unbudgeted for expenditures related to the COVID-19 
public health emergency.
    Treasury guidance clarifies specific expenditures for which 
CRF fund recipients can use these funds in accordance with that 
statute; in many cases those expenditures relate to essential 
government services.

Q.3. We still don't know what exact formula Treasury used to 
distribute the first $4.8 billion dollars, and how you plan to 
distribute the rest. What formula did you use?

A.3. Please see Tribal Allocation Methodology on Treasury's 
website here: https://onect.treasuryecm.gov/--layouts/15/
UniversalCT/pages/CTHome.aspx?Id=2020-SE-5528 and here https://
home.treasury.gov/system/files/136/Tribal-Allocation-
Methodology-for-Second-Distribution.pdf.

Q.4. Will you make public future distribution formulas you are 
using to distribute these Tribal Relief Funds? For past and 
future allocations? When?

A.4. As with previous methodologies used for the payments of 
CRF funds to tribal governments, Treasury intends to include 
the methodology for future payments to tribal governments if 
such payments may be required in the future.

Q.5. In Minnesota and across the country, people experiencing 
homelessness are especially vulnerable to COVID-19. People 
living in shelters, or encampments, or in their cars don't have 
the most basic thing we all need, a safe place to call home. 
Many of them are youth, or moms with children. They don't have 
a permanent address, and many of them have not filed a tax 
return, so how do they get the direct recovery assistance that 
they need so desperately.
    Has Treasury done outreach to homeless service providers or 
local Continuums of Care and asked them to help identify people 
experiencing homelessness and work with them to claim their 
payment?

A.5. The Treasury Department and the IRS have conducted 
outreach with homeless service providers as well as other 
organizations that work closely with the homeless and other 
underserved groups. The IRS has made tens of thousands of 
contacts with a variety of nonprofits, social service agencies, 
State and local organizations, and many others with millions of 
members to share information related to Economic Impact 
Payments. This includes food banks, faith-based organizations, 
and SNAP organizations.
    For example, as of June 12, 2020, the IRS has reached out 
to more than 4,500 homeless shelters with information on how to 
obtain an Economic Impact Payment. The IRS has shared 
information with the Department of Housing and Urban 
Development, including the Continuum of Care Program, \1\ to 
provide information to individuals experiencing homelessness to 
assist them in submitting information needed to obtain an 
Economic Impact Payment. The IRS will also continue to reach 
out to other national organizations dedicated to assisting 
these individuals and others who are eligible to receive an 
Economic Impact Payment.
---------------------------------------------------------------------------
     \1\ See https://www.hud.gov/hudprograms/continuumofcare.

Q.6. The CARES Act required you to conduct a public awareness 
campaign on the availability of these payments for non-tax 
filers. In late April, the IRS published some promotional 
materials encouraging these individuals to sign up at IRS.gov 
to receive their payments.
    Is this the extent of your public awareness campaign? How 
would you expect these individuals to access the Internet when 
places like libraries and cafes have been closed by stay-at-
home orders?

A.6. Treasury and the IRS have continued to actively carry out 
the public awareness campaign. This is one of the biggest 
communications and outreach efforts the IRS has undertaken, 
with more than 100 products being created and more taking place 
each week in advance of the October 15 deadline to use the Non-
Filers tool. In addition to sharing extensive material with the 
news media, social media, and websites, this national public 
awareness campaign has included partnering with a wide spectrum 
of community and professional groups across the country-with 
special emphasis being given to working with organizations that 
interact with those who may not normally file a tax return, 
including organizations and social service groups that assist 
underserved communities. Thousands of these contacts have taken 
place, and the IRS has created special tools and products, like 
partner kits, to help share information about Economic Impact 
Payments to those with-and without-Internet access. As more 
areas have reopened, this effort has continued to reach an 
increasing number of people.

Q.7. Please describe the full range of steps actions the 
Department of Treasury has taken to provide recovery rebate 
payments to individuals experiencing homelessness.

A.7. In addition to the outreach efforts described in a 
previous question, the IRS has taken special steps to reach 
potential organizations nationwide that might assist 
individuals experiencing homelessness and share IRS-related 
Economic Impact Payment resources with them. The IRS has asked 
these organizations to act as a ``trusted partner'' to receive 
payments on behalf of their homeless clients. More than 300 
organizations agreed when asked by the IRS if they would act as 
a ``trusted partner'' allowing homeless persons to use their 
physical address to receive an Economic Impact Payment. In 
addition, organizations across the country continue to work in 
local communities with the homeless and other under-served 
communities to share Economic Impact Payment information, 
including information on how homeless individuals can provide a 
mailing address for a payment. These efforts range from (i) 
volunteer efforts at IRS-supported Volunteer Income Tax 
Assistance and Tax Counseling for the Elderly sites, as well as 
low-income taxpayer clinics; to (ii) sharing information with 
social service groups, nonprofits, faith-based institutions, 
and an array of Federal, State, and local agencies such as the 
Consumer Financial Protection Bureau. Thousands of 
organizations have been reached and these efforts continue.

Q.8. Some advocates and members of the homeless community have 
suggested that the IRS send checks using the Postal Service's 
General Delivery service, which can deliver mail to people 
without a permanent address. The IRS has not indicated whether 
they would consider this.
    What is your view on this proposal? Will you work with the 
Postal Service and take advantage of this vitally important 
service that many people experiencing homelessness are already 
familiar with?

A.8. The Treasury Department and the IRS are considering the 
potential effectiveness of partnering with the Postal Service 
to leverage its General Delivery service to reach those 
Americans experiencing homelessness. Our successful partnership 
with the Department of Veterans Affairs has helped ensure that 
Veterans and their beneficiaries who receive Federal benefits 
receive their Economic Impact Payments automatically and 
without additional paperwork. Since the enactment of the CARES 
Act, we have continued to explore ways to improve our ability 
to deliver this much-needed relief to the American people.

Q.9. Accessing loans under the Paycheck Protection Program has 
been a challenge for many business owners, especially for 
business owners of color and native businesses, who are less 
likely to have a lending relationship with a bank that will 
accept their PPP application.
    Is it acceptable for the largest banks in the country to be 
only processing PPP applications for existing customers, for 
most of the time that they were accepting PPP applications?
    Should the largest banks in the country, like JPMorgan 
Chase, Wells Fargo, Bank of America, and Citi, be allowed to 
prioritize PPP loans for some customers over others? Or should 
they be processed on a first come, first served basis?
    What steps have you taken to ensure all eligible businesses 
are able to access PPP loans?

A.9. The Secretary shares your interest in making the PPP 
available and accessible to as many of America's job creators 
and their employees as feasible. 45 percent of the approved PPP 
lending amount was lent by lenders with less than $10 billion 
in assets. With an average loan size of approximately $100,000, 
the program is serving the smallest of businesses.
    Treasury and SBA have undertaken extensive and ongoing 
efforts to encourage lending to underserved and rural 
borrowers. These efforts have included recruiting lenders that 
operate in underserved communities to participate in PPP and 
facilitating their approval of PPP loans, as well as educating 
underserved borrowers about the opportunities that exist for 
them through PPP. Guidance was issued to all lenders asking 
them to redouble their efforts to assist eligible borrowers in 
underserved and disadvantaged communities. This was done to 
ensure that individuals, businesses, and other entities in 
underserved and rural markets, including veterans and members 
of the military community, small business concerns owned and 
controlled by socially and economically disadvantaged 
individuals, women, and businesses in operation for less than 
two years, all benefited from PPP.
    Treasury and SBA have worked closely with Congress, 
regional and community banks, fintech lenders, CDFIs, MDIs, the 
Department of Agriculture, and other stakeholders to ensure 
that as many workers and small businesses as possible can 
readily participate in the opportunities afforded by this 
program, with particular focus on underserved borrowers, 
including minorities, women, and rural entrepreneurs. Treasury 
and SBA extensively recruited lending institutions that 
typically operate in underserved communities to participate as 
PPP lenders. An important focus of our efforts to serve 
underserved communities has been to harness the role of CDFIs 
and MDIs. Hundreds of CDFIs were contacted and advised of their 
eligibility to participate in the PPP. As of August 8, 2020, 
when the PPP closed to new loan applications, 432 CDFIs and 
MDIs had participated and provided 221,000 loans totaling more 
than $16.4 billion. The program has resulted in $106 billion 
provided to businesses in HUBZones, accounting for more than 20 
percent of all PPP funding. Data also show that the loans have 
been broadly distributed and made across diverse areas of the 
economy, with 27 percent of the funds going to low- and 
moderate-income communities, which is in proportion to their 
percentage of the population.

Q.10. In addition, I sent you a letter on May 7 raising several 
question about the PPP program, which I repeat below.
    What steps are you taking to ensure PPP borrowers are made 
fully aware of the requirements of the program, including 
requirements to qualify for loan forgiveness?
    What, if any, documents are provided to borrowers to 
understand the rules of the loan and forgiveness? Are borrowers 
required to acknowledge that they understand the program rules 
before obtaining a loan?
    Is there any requirement for lenders to consider whether 
PPP is the best program for borrowers, in comparison to other 
economic support options that may be available, before 
processing a loan application? Are fees paid to lenders 
structured in a way that they incentivize good lending 
practices and proper treatment of customers?
    What steps are you taking to prepare for the millions of 
requests for loan forgiveness that will arise in coming weeks? 
What processes have been established to help borrowers 
understand how to obtain forgiveness, and when will you publish 
final rules on loan forgiveness?
    Do you believe lenders be prepared to handle the large 
volume of requests that will soon arrive? Are lenders 
appropriately incentivized to handle the requests in an 
appropriate and timely manner?

A.10. More than 5 million PPP loans were approved by nearly 
5,500 lenders, helping to support an estimated 51 million jobs 
and more than 80 percent of small business payroll. As of 
August 8, 2020, this included over 102,000 PPP loans to 
borrowers in Minnesota for more than $11.2 billion. With an 
average loan size of approximately $100,000, the program is 
serving the smallest of businesses. PPP loans have also been 
broadly distributed, with about 27 percent of the funds going 
to low and moderate income communities, which is in proportion 
to their percentage of the population.
    Treasury has posted information to its website to address 
specific lender and borrower questions about eligibility and 
the application and forgiveness process, among other topics. 
This includes guidance to reflect the PPP Flexibility Act's 
amendments to the PPP to, among other things, extend the 
covered period for loan forgiveness to 24 weeks after the date 
of loan disbursement and to lower the percentage of a 
borrower's PPP loan proceeds that must be used for payroll 
costs. This also includes an SBA Procedural Notice on 
procedures for lender submission of PPP loan forgiveness 
decisions to SBA and SBA forgiveness loan reviews. Treasury and 
SBA will continue to provide additional guidance, as 
appropriate, to help small businesses and other eligible 
borrowers get the assistance they need.

Q.11. On April 23, I wrote to you to urging that a number of 
business types that were previously denied PPP loans be made 
eligible for the program. Thank you for heeding my request and 
making rural electric cooperatives, agricultural cooperatives, 
rural hospitals and Tribal businesses eligible for the program. 
The two remaining business types I noted in my letter are small 
banks and credit unions, who cannot use PPP loans for their own 
operations.
    Do you plan to make credit unions and community banks 
entities eligible for PPP? Why or why not?

A.11. Treasury and SBA will continue to provide additional 
guidance, as appropriate, to help small businesses and other 
eligible borrowers get the assistance they need.

Q.12. The CARES Act directed Treasury and the Federal Reserve 
to set up a lending program for midsize businesses. You said 
you intended to comply with both the letter and the spirit of 
the CARES Act.
    One provision of the CARES Act says that the Treasury 
Secretary ``shall endeavor'' to establish a lending program for 
midsize businesses and that any borrower applying for a loan 
under the midsize business lending program must certify that 
``the recipient will not outsource or offshore jobs for the 
term of the loan and 2 years after[wards].''
    Yet, when the Fed unveiled the term sheets for the Main 
Street Lending Facility, there doesn't seem to be any mention 
of a certification for not moving jobs offshore.
    Do you think firms getting taxpayer-funded bailout should 
be required to keep their jobs in the United States?
    Why wasn't this a requirement in your agreement with the 
Fed to require firms to agree not to move jobs or production 
overseas?
    What about other Treasury-Fed lending programs, besides the 
midsize business lending program? Don't you think that any firm 
receiving a Federal grant or loan should be required to agree 
that they won't move jobs offshore?
    In what ways did you ``endeavor'' to implement the program 
as described in the CARES Act, in keeping with both the spirit 
and letter of the law?
    Why isn't the offshoring provision required in the Main 
Street Lending Program? What steps did you take in an effort to 
implement that provision?
    Besides the offshoring provision, please describe the steps 
you took to comply with both the letter and spirit of Section 
4003(c)(3)(D)(i)(I) through (X) of the CARES Act, including why 
you ultimately chose to implement each requirement or not.

A.12. The Main Street Lending Program was designed to support 
credit provision to U.S. businesses that were in good financial 
condition before the COVID-19 crisis to help maintain their 
operations and employment until the economy recovers. Main 
Street is not a grant program, and the terms of loans under the 
program are not intended to be better than market.
    Under section 4003(c)(3)(C) of the CARES Act, a borrower 
must be ``businesses that are created or organized in the 
United States or under the laws of the United States and that 
have significant operations in and a majority of its employees 
based in the United States.'' An eligible borrower may be, 
however, a subsidiary of a foreign company, provided that the 
borrower itself is created or organized in the United States or 
under the laws of the United States, and the borrower on a 
consolidated basis has significant operations in and a majority 
of its employees based in the United States. Any borrower that 
is a subsidiary of a foreign company must use the proceeds of a 
Main Street loan only for the benefit of the borrower, its 
consolidated U.S. subsidiaries, and other affiliates of the 
borrower that are U.S. businesses. The proceeds of a Main 
Street loan may not be used for the benefit of such borrower's 
foreign parents, affiliates, or subsidiaries. Main Street 
borrowers are also fully subject to the CARES Act's 
restrictions on officer and employee compensation, dividend 
payments, and stock buybacks.
    With respect to Section 4003(c)(3)(D)(i)(I) through (X) of 
the CARES Act, we believe that Main Street has fulfilled 
Congress's intent to balance support to small- and medium-sized 
businesses with guarding taxpayer funds. The program provides 
medium-term loans to companies that were in sound financial 
condition before the crisis, and have solid post-pandemic 
prospects, to bridge the economic disruption caused by the 
coronavirus. While economic conditions have improved 
considerably since work began on designing Main Street, we have 
continued to make changes to the program to address public 
comments. We recognize that there remains, nonetheless, a 
degree of uncertainty over the short to medium-term impact of 
the virus on economic activity, and potential changes that 
companies may need to make to be successful in the short and 
long-term. In the interim, restricting borrowers' flexibility 
to adjust to these challenging times may limit their 
sustainability, resulting in increased losses of both jobs and 
taxpayer funds. We underscore that recent business surveys have 
indicated that there is limited unmet demand for credit.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                     FROM STEVEN T. MNUCHIN

Q.1. In Arizona and across the country, COVID-19 harmed many 
small business that provide renewable energy and stalled 
projects that were near completion but faced pandemic-related 
supply chain and employment disruptions. Under existing rules, 
if projects are not completed on time they risk losing 
eligibility for tax benefits. I was pleased to hear the 
Treasury Department was considering extending the continuity 
safe harbor for both the production tax credits (PTC) and 
energy investment tax credits (ITC) from four to five years for 
projects that began construction in 2016 or 2017. I'm asking 
Treasury to consider extending continuity safe harbor 
protections for all eligible projects from 2016 to the present, 
as all have faced COVID-19 related delays and challenges. It is 
my hope that the forthcoming guidance will capture projects 
that meet either one of the two safe harbor tests, the five 
percent investment test, or the begin construction test. Will 
the Treasury Department guidance extend ITC safe harbor for all 
eligible projects that began between 2016 and the present, that 
meet either of the two safe harbor tests?

A.1. Notice 2020-41 \1\7 was issued on May 27, 2020, providing 
relief for taxpayers developing PTC and ITC eligible renewable 
energy projects by extending the four-year ``continuity safe 
harbor'' for certain projects that began construction in 2016 
or 2017. The Notice also provides a ``3.5 month safe harbor'' 
for services or property paid for by the taxpayer on or after 
September 16, 2019 and received by October 15, 2020. This 
guidance provides taxpayers with flexibility to satisfy the 
beginning of construction requirements despite current delays 
and disruptions. We will continue to monitor the impact of 
COVID-19 on this industry and will consider additional relief 
as needed.
---------------------------------------------------------------------------
     \1\ See https://www.irs.gov/pub/irs-drop/n-20-41.pdf.

Q.2. On May 5, the Treasury Department finally released $4.8 
billion of the $8 billion in the Coronavirus Relief Fund 
allocated by the CARES Act for Tribal communities. This 
announcement came over a month after Congress passed the CARES 
Act with a statutory deadline for these funds to be distributed 
to Tribes before 30 legislative days. Unfortunately, three 
weeks have gone by and the full amount has still not been 
distributed. This is unacceptable. Tribes in Arizona need all 
available resources to fight the coronavirus pandemic now. When 
will the Treasury Department disburse the total amount of CARES 
Act funding to Tribal communities? Do you have any information 
on the specifics of the formula that will distribute these 
---------------------------------------------------------------------------
funds?

A.2. Treasury has completed making payments to tribal 
governments, other than amounts that have not been paid to 
Alaska Native corporations pending litigation on that issue. 
The distribution methodology can be found on Treasury's website 
at https://home.treasury.gov/system/files/136/Coronavirus-
Relief-Fund-Tribal-Allocation-Methodology.pdf and https://
home.treasury.gov/system/files/136/Tribal-Allocation-
Methodology-for-Second-Distribution.pdf.

Q.3. Thousands of hotels have been shuttered due to the COVID-
19 pandemic, with revenues down 80 percent. According to an 
American Hotel and Lodging Association survey, only 15 percent 
of commercial mortgage-backed security (CMBS) borrowers have 
received any kind of forbearance or debt relief from their 
servicers. Mass foreclosures in the CMBS market would be 
catastrophic to Arizona communities that rely on tourism. What 
proposal is the Administration considering to prevent 
unprecedented mass foreclosures in the hotel CMBS market?

A.3. Treasury and the Federal Reserve continue to monitor the 
market impact of the COVID-19 pandemic on commercial real 
estate borrowers, including those whose loans are in CMBS. 
Treasury continues to work with the Federal Reserve to assess 
the efficacy of existing facilities established under the 
Federal Reserve's 13(3) emergency lending authority, and will 
evaluate appropriate changes necessary to promote the flow of 
credit and support a robust economic recovery.

Q.4. As we continue to combat this pandemic, business owners 
are worried about their survival right now and in the coming 
weeks and months as our country slowly reopens. Do you believe 
that businesses will need an ongoing source of financial 
assistance to provide confidence to reopen and rehire as 
opposed to one-time debt options?

A.4. Treasury has taken action to provide fast and direct 
economic assistance to American workers and their families, 
small businesses, and those hit hardest by the COVID-19 global 
pandemic. Treasury is monitoring economic conditions closely, 
and we look forward to continued discussions with you and your 
staff to address critical issues.

Q.5. Per its April 30 guidance, the Federal Reserve ruled that 
the Term Asset-Backed Securities Loan Facility (TALF) will not 
consider collateral without a credit rating from the highest 
investment-grade rating category from a major nationally 
recognized statistical rating organizations (NRSROs) as 
eligible collateral. Right now, the consumers and small 
business owners turning to personal loans are those most in 
need of support and access to credit at this difficult time. Is 
the Fed considering approving investment-grade personal loans 
as eligible collateral under TALF to ensure that these American 
consumers and small business owners are not left out?

A.5. Treasury continues to work with the Federal Reserve to 
assess the efficacy of existing facilities established under 
the Federal Reserve's 13(3) emergency lending authority, and 
will evaluate appropriate changes necessary to promote the flow 
of credit and support a robust economic recovery. No such 
decision has been taken to expand TALF at this time.

Q.6. Per its April 30 guidance, the Federal Reserve ruled that 
TALF will only consider collateral with a credit rating in the 
highest long-term or short-term investment-grade rating 
category from at least two NRSROs. Self-employed borrowers 
generally experience greater income volatility and rely on 
unconventional forms of documentation to access credit. As 
such, the self-employed often struggle to access credit 
affordably. However, like other small businesses, self-employed 
business owners are important contributors to Arizona's 
economy. Are there plans to allow AAA residential mortgage-
backed securities as eligible collateral under TALF?

A.6. Treasury continues to work with the Federal Reserve to 
assess the efficacy of existing facilities established under 
the Federal Reserve's 13(3) emergency lending authority, and 
will evaluate appropriate changes necessary to promote the flow 
of credit and support a robust economic recovery. No such 
decision has been taken to expand TALF at this time.

Q.7. Given record high unemployment levels in Arizona, mortgage 
forbearance and delay of evictions are a very temporary 
solution. Servicers of home loans backed by Fannie Mae, Freddie 
Mac, and Ginnie Mae are not only required to make mortgage 
payments on behalf of the borrowers, but also payments on 
property taxes, homeowners and mortgage insurance, and 
homeowner association dues. As more and more homeowners enter 
forbearance, both independent mortgage servicers and community 
banks will need liquidity support. How do your organizations 
plan to deal with mass forbearance and provide liquidity to 
struggling servicers? Service transferring is already a chaotic 
process for borrowers. Can a program be created to avoid 
borrowers having their service transferred during such a 
critical time?

A.7. Treasury is actively monitoring the mortgage market and 
the associated impact of COVID-19. We have focused considerable 
resources on delivering authorized support to households and 
businesses struggling as a consequence of the necessary public 
health response. On March 26, 2020, Secretary Mnuchin announced 
the creation of a Financial Stability Oversight Council Task 
Force on Nonbank Mortgage Liquidity, which first convened on 
March 30 to discuss conditions and activities in the mortgage 
servicing markets and remains in regular discussions. Treasury 
will continue to work to promote stable markets, including for 
residential mortgage lending.

Q.8. Requiring servicers to advance property taxes, hazard 
insurance, homeowners association dues, and other assessments 
is no small task. Servicers typically advance these amounts 
when borrowers face financial shortfalls or after a natural 
disaster without any problem, however, the national scale of 
this pandemic is unpresented and our municipal and county 
budgets are already strained. Both Fannie Mae and Ginnie Mae 
have taken steps to moderate the servicer advancing burdens for 
principle and interest. Have your organizations contemplated 
the risks to cities and counties if liquidity is not restored? 
Have you considered standing up a liquidity facility to help 
servicers make these tax and insurance advances, particularly 
in cities and counties that are not able to access the 
Municipal Liquidity Facility?

A.8. Treasury is actively monitoring the mortgage market and 
the associated impact of COVID-19. We have focused considerable 
resources on delivering authorized support to households and 
businesses struggling as a consequence of the necessary public 
health response. On March 26, 2020, Secretary Mnuchin announced 
the creation of a Financial Stability Oversight Council Task 
Force on Nonbank Mortgage Liquidity, which first convened on 
March 30 to discuss conditions and activities in the mortgage 
servicing markets and remains in regular discussions. Treasury 
will continue to work to promote stable markets, including for 
residential mortgage lending.

Q.9. Nonprofits serve on the front lines of the coronavirus 
pandemic helping feed Arizona families, providing Arizonans 
safe shelter, and connecting Arizonans to critical health 
services. To continue their important work and meet growing 
need they may need access to the 13(3) facilities. What can you 
do to ensure that nonprofits with up to 10,000 employees 
receive additional financial assistance?

A.9. On September 4, the Federal Reserve Bank of Boston 
announced that two new Main Street Lending Program facilities 
were fully operational. This program is designed to help credit 
flow to small- and medium-sized nonprofit organizations that 
were in sound financial condition prior to the pandemic and 
have solid post-pandemic prospects. Nonprofit organizations 
with 15,000 employees or fewer, or 2019 annual revenues of $5 
billion or less, are eligible.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                     FROM JEROME H. POWELL

Q.1. Are Treasury or the Federal Reserve requiring the 
companies, including the banks' customers which use loan 
programs to report payroll information that will allow Congress 
to assess whether funds are being used to keep workers employed 
and paid? If not, how do you intend to assess whether funds are 
being used to keep workers employed and paid?

A.1. The emergency lending facilities are intended to promote 
the flow of credit to households, business, and communities. 
Our efforts have been targeted at achieving our dual mandate, 
including the creation of an environment where the unemployed 
have the best possible chance to return to their old jobs or 
find new ones as the economy recovers. Our facilities were 
designed in compliance with both the Coronavirus Aid, Relief, 
and Economic Security Act (CARES Act) and section 13(3) of the 
Federal Reserve Act, which do not mandate that funds are used 
to keep workers employed and paid. For our Main Street Lending 
Program (Main Street), we do expect borrowers to make 
commercially reasonable efforts to maintain their payrolls. 
This means that businesses that participate in the program are 
expected to make good-faith efforts to maintain payroll and 
retain employees in light of their capacities, the economic 
environment, their available resources, and their business need 
for labor. Borrowers' commercially reasonable efforts to 
maintain payrolls may take different forms across the broad 
range of businesses eligible for Main Street. The Federal 
Reserve and the Department of the Treasury (Treasury 
Department) will monitor Main Street's impact on small and 
medium-sized businesses and the resulting effects of that and 
the other 13(3) facilities on the economic recovery and 
employment broadly rather than on a borrower-by-borrower basis.
    Recognizing that the manner for best supporting their 
operations and payroll will likely vary considerably across 
borrowers, Main Street borrowers are not required to disclose 
the intended use of funds. They do, however, face restrictions 
on their use. Main Street borrowers are generally restricted 
from repaying existing debt ahead of schedule until the Main 
Street loans are repaid. Main Street borrowers are also subject 
to the CARES Act restrictions on compensation, stock 
repurchases, and capital distribution restrictions that apply 
to direct loan programs. Further, Main Street borrowers may not 
use the proceeds of a Main Street loan for the benefit of its 
foreign parents, affiliates, or subsidiaries.
    Overall, providing credit to businesses, large and small, 
should help to ensure that their workers remain employed and 
paid through this very difficult period. The Federal Reserve 
will continue to consider adjustments to Main Street's terms 
and conditions, as appropriate.

Q.2. Highly leveraged energy sector companies were already 
facing downgrades prior to the coronavirus outbreak, yet you 
recently made revisions to lending programs that will allow 
many of these companies to receive bailouts. Why is it 
appropriate to provide funds to prop up businesses that were 
failing regardless of the impacts of the coronavirus outbreak? 
Pursuant to the Federal Reserve's role on the Financial 
Stability Oversight Council, did you consider the ramifications 
of further subsidizing an industry that contributes to climate 
change given the likelihood that the effects of climate change 
will lead to more volatile and less stable financial markets? 
If so, please provide your analysis.

A.2. As noted above, the emergency lending facilities were 
established to support the flow of credit to households, 
businesses and communities. We hope the assistance will help 
them to be in a position to make the recovery as strong as 
possible. Pursuant to section 13(3) of the Federal Reserve Act, 
the Federal Reserve is prohibited from lending to entities that 
are insolvent. To meet that requirement, we have structured the 
facilities to provide access to businesses across the economy 
that were in sound financial condition prior to COVID-19.
    The Federal Reserve is monitoring the conditions in the 
financial system and economy to take actions needed to support 
the economy, maintain the flow of credit to households and 
businesses, and promote our maximum employment and price 
stability goals. Accordingly, and as needed, the Federal 
Reserve Board (Board) and the Secretary of the Treasury 
(Secretary) may make adjustments to the terms and conditions of 
the programs, including pricing and eligibility requirements. 
For example, following the initial announcement of Main Street, 
the Board received a number of comments requesting adjustments 
to the maximum loan size, leverage levels, and ability to use 
the proceeds to refinance debt from a wide variety of potential 
lenders and borrowers. In response to these comments, the scope 
and eligibility of the Main Street facilities were expanded.
    The Federal Reserve remains committed to understanding the 
risk climate change poses to the real economy and financial 
system. As I have mentioned in previous letters to you and 
other Members of Congress, staff across the Federal Reserve 
System are conducting research to understand the ways in which 
climate-related risks may transmit to the real economy and 
financial system. This work includes assessing how the 
financial sector's exposure to energy companies could affect 
the financial system and real economy. Staff research also 
supports the Board's participation in several forums with other 
U.S. and international regulators where the evaluation of the 
effects of climate change on the financial system are 
particularly relevant.

Q.3. The Administration opposes the spending package recently 
passed by the House. Based on your comments that fiscal 
stimulus is needed, does it make more sense to spend billions 
propping up failing companies that put our economy at risk than 
it does to spend more money on families that need to pay rent?

A.3. The CARES Act and other fiscal policy actions are 
providing direct help to families, businesses, and communities. 
This support can make a critical difference to helping both 
families and businesses in a time of need, as well as limiting 
long-lasting damage to our economy. Ultimately, however, it is 
the responsibility of the Congress and the Administration to 
decide on the appropriate size and composition of any 
additional fiscal stimulus.

Q.4. The Federal Open Market Committee minutes from April 28-
29, 2020 note that the activities of some nonbank financial 
institutions present vulnerabilities to the financial system 
that could worsen in the event of a protracted economic 
downturn and that these institutions and activities should be 
monitored closely. What is the Federal Reserve, on its own and 
as a member of the Financial Stability Oversight Council, doing 
to monitor these institutions and their activities? What 
particular types of nonbank financial institutions or 
activities are particularly vulnerable and how does the Federal 
Reserve plan to address those vulnerabilities? Has the Federal 
Reserve taken these vulnerabilities into account when creating 
its 13(3) facilities? Will the Federal Reserve propose to 
designate any of these nonbank financial institutions 
systemically important?

A.4. Nonbank financial institutions (NBFI) include a diverse 
group of entities such as insurance companies, finance 
companies, government-sponsored enterprises, hedge funds, 
security brokers and dealers, issuers of asset-backed 
securities, mutual funds, and money market funds. These NBFIs 
have diverse business models and practices, many of which 
differ greatly from those of banks. Even so, these institutions 
and activities can pose similar vulnerabilities to those of 
banks, including high leverage, excessive maturity 
transformation, and complexity, all of which can lead to 
financial stability risks, as manifested in the wake of COVID-
19. The Federal Reserve has been closely monitoring these 
institutions and their activities on a continuous basis, both 
on its own and as a member of the Financial Stability Oversight 
Council (FSOC), as reflected in various publications including 
the Federal Reserve's Financial Stability Reports (FSR) and the 
FSOC Annual Reports.
    The FSOC conducts regular assessments of systemic risks 
posed by the activities of nonbank financial institutions under 
its activities-based approach to designation. These assessments 
occur through discussions at the Systemic Risk Committee and 
publications from the FSOC and its members, such as the FSOC 
Annual Report, the Federal Reserve's FSR, and the Office of 
Financial Research's Financial Stability Risk Assessment. 
Designations of institutions as systemically important are a 
matter for the entire FSOC to address, and any questions about 
designations and the work of the FSOC are most appropriately 
directed to the Secretary, who serves as the Chair of the FSOC.
    The Federal Reserve's May 2020 FSR highlights several 
vulnerabilities for NBFIs, including dealer balance sheet 
constraints, potential runs in money market funds, fire sale 
risks arising from liquidity transformation by asset managers 
and insurers, liquidity strains associated with deleveraging by 
leveraged investors such as hedge funds, and funding stress 
faced by mortgage servicers. \1\ The FSR describes these risks 
in more detail, as well as actions that the Federal Reserve 
took in March of this year to help alleviate these pressures. 
Staff continue to monitor these vulnerabilities and work with 
relevant regulators through the FSOC to consider potential 
solutions.
---------------------------------------------------------------------------
     \1\ www.federalreserve.gov/publications/2020-may-financial-
stability-report-purpose.htm.
---------------------------------------------------------------------------
    Amid the tensions and uncertainties of mid-March and as a 
more adverse outlook for the economy took hold, investors 
exhibited greater risk aversion and pulled away from longer-
term and riskier assets as well as from some money market 
mutual funds. The Federal Reserve, together with the Treasury 
Department, established several emergency lending facilities 
under the emergency lending authority in section 13(3) of the 
Federal Reserve Act to ensure the smooth functioning of various 
markets and to mitigate the financial stability risks arising 
from vulnerabilities in the financial system. For example, to 
stabilize the short-term funding markets, the Federal Reserve 
established the Primary Dealer Credit Facility, the Commercial 
Paper Funding Facility, and the Money Market Mutual Fund 
Liquidity Facility. To support the longer-term financing of 
businesses, States, and localities, the Federal Reserve 
launched the Term Asset-Backed Securities Loan Facility, the 
Primary Market Corporate Credit Facility, the Secondary Market 
Corporate Credit Facility and the Municipal Liquidity Facility 
(MLF). We also launched Main Street and the Paycheck Protection 
Program Liquidity Facility to boost credit flows to small and 
medium-sized businesses.

Q.5. Millions of Americans are unable to make their credit card 
and auto loan payments because of the economic effects of the 
coronavirus pandemic. \2\ What are the concentrations of 
consumer debt in each sector of the financial system? How is 
the Federal Reserve analyzing the levels of consumer debt at 
banks and nonbanks, including the likelihood of charge-offs and 
losses occurring simultaneously and the effect on financial 
stability?
---------------------------------------------------------------------------
     \2\ https://www.wsj.com/articles/millions-of-americans-skip-
credit-card-and-car-payments-11589985381

A.5. Banking organizations entered this crisis in strong 
financial condition. Within the banking industry, consumer 
lending is dominated by a few large banking organizations, 
including a handful of auto and credit card companies. Credit 
card lending is concentrated at a small number of the large 
banking organizations, while nonbanks account for about one-
half of mortgage origination and servicing and two-thirds of 
auto lending.
    We expect substantial deterioration in consumer credit 
quality given the high unemployment caused by COVID-19. 
However, the extent of deterioration is difficult to estimate 
due to the uncertain paths of the virus and the economic 
recovery. Moreover, recent actions by the Government and 
private lenders have mitigated some of the negative effects of 
the crisis on consumer credit. For example, the stimulus 
payments and unemployment insurance expansions included in the 
CARES Act have assisted individuals and households in covering 
short-term expenditures. The CARES Act also provides mortgage 
payment forbearance for up to 12 months for borrowers in 
federally backed loans that are experiencing COVID-19-related 
hardship. In addition, the Board, along with the other Federal 
financial institution regulatory agencies, issued guidance to 
encourage financial institutions to work constructively with 
borrowers affected by COVID-19 and provide additional 
information regarding loan modifications in light of the CARES 
Act. \3\ This guidance notes that when working with borrowers, 
lenders and servicers should adhere to consumer protection 
requirements, including fair lending laws, to provide the 
opportunity for all borrowers to benefit from these 
arrangements. Most lenders, bank and nonbank alike, report 
working with their borrowers and are offering various 
forbearance programs that provide additional short-term relief.
---------------------------------------------------------------------------
     \3\  ee press release at https://www.federalreserve.gov/
newsevents/pressreleases/bcreg20200407a.htm.
---------------------------------------------------------------------------
    The Federal Reserve dedicates substantial resources to 
provide oversight of consumer lending in supervised 
institutions. We closely supervise institutions with larger 
consumer loan exposures through processes such as the 
Comprehensive Capital Analysis and Review and the Horizontal 
Capital Review, and through the work of dedicated supervisory 
teams. Current supervisory activities include monitoring for 
the potential effects of the expiration of the forbearance and 
consumer assistance programs on consumer credit. Forbearance 
programs are not standardized across firms or for product 
types, clouding analysis of the timing and severity of losses. 
However, the programs are likely to extend the timing of COVID-
19-related losses into 2021.
    The Federal Reserve also monitors closely credit 
performance changes at nonbank lenders, such as credit unions 
and finance companies, to achieve a more comprehensive picture 
of the stress households may have in meeting their debt 
obligations. In addition, the Federal Reserve pays close 
attention to developments in the asset-backed securities market 
as this market provides important liquidity for lending to 
households.

Q.6. You previously said ``we have the evidence from the global 
financial crisis and the years afterwards that State and local 
governments' layoffs and lack of hiring did weigh on economic 
growth.'' Can you describe in greater detail the extent to 
which State and local governments' layoffs and lack of hiring 
slowed the economic recovery after the Great Recession? Do you 
expect a similar impact to occur in the economic downturn 
related to COVID-19? Do you have similar concerns about the 
economic impacts of cuts to services at the State and local 
levels?

A.6. State and local governments confronted significant fiscal 
strain following the Great Recession. As a result, their 
employment fell for several years. More broadly, the overall 
purchases of these governments fell for four years following 
the recession-with outlays for infrastructure falling 
particularly sharply-and rose only anemically for several years 
thereafter. It is well documented that these outcomes weighed 
on broader economic growth. \4\
---------------------------------------------------------------------------
     \4\ See, for example, the analysis in Cashin, Lenney, Lutz, and 
Peterman, ``Fiscal Policy and Aggregate Demand in the U.S. Before, 
During and Following the Great Recession'', Finance and Economics 
Discussion Series 2017-061. Washington: Board of Governors of the 
Federal Reserve System.
---------------------------------------------------------------------------
    State and local governments are currently confronting acute 
budget pressure as the sharp decline in economic activity 
caused by COVID-19 has pushed down their tax collections. The 
Federal Reserve has established the MLF in order to help these 
governments better manage the cash flow pressures they are 
confronting, and Congress and the Administration have provided 
direct support to the States and localities through the CARES 
Act and other actions. The extent to which State and local 
governments will impose a drag on economic activity going 
forward will depend importantly on the path of the broader 
economic recovery--and the corresponding extent to which these 
governments' tax bases recover-and the extent to which these 
governments receive additional support from the Federal 
Government. That said, it is the responsibility of the Congress 
and the Administration to decide on the appropriate size and 
composition of any additional fiscal stimulus.

Q.7. If banks are meant to do meaningful underwriting as part 
of the Main Street Lending Programs (MSLP), and the Federal 
Reserve and the Treasury have designed the MSLP to minimize 
losses, why is the risk of loss on the loans shared on a pari 
passu basis between the participating bank and the MSLP SPV?

A.7. Under Main Street, lenders are required to retain five 
percent of each loan participated to the Main Street special 
purpose vehicle (SPV) and to share losses with the Main Street 
SPV on a pari passu basis. The Federal Reserve and Treasury 
Department believe that this level of risk sharing will 
incentivize prudent underwriting and risk management standards 
and, therefore, limit downside risk to taxpayers. At the same 
time, pari passu risk-sharing creates balance sheet capacity 
for eligible lenders and facilitates a ``true sale'' of the 
participation interest to the Main Street SPV.

Q.8. Why did the Federal Reserve and Treasury select the 
participation rates of 95 percent and 85 percent for the Main 
Street Lending Programs?

A.8. On June 8, the Board amended the terms of the Main Street 
facilities to enable more small and medium-sized businesses to 
receive Main Street loans. Part of this expansion included 
raising the Main Street SPV's participation rate to 95 percent 
for loans across all of the Main Street facilities.
    The Board and Treasury Department considered several 
factors in sizing the rate of participation in Main Street 
eligible loans and upsized tranches. The agencies created Main 
Street facilities that purchase sizable (but less-than-100 
percent) participations in loans in order to maintain a level 
of risk sharing that creates balance sheet capacity for 
eligible lenders, while at the same time providing eligible 
lenders a strong incentive to apply prudent underwriting and 
risk management standards. A 95 percent participation provides 
an appropriate balance of these considerations.

Q.9. The Federal Reserve FAQs for the Primary Market Corporate 
Credit Facility and Secondary Market Corporate Credit Facility, 
and for the Term Asset-Backed Securities Loan Facility, 
initially indicated the Federal Reserve would accept ratings 
only from the three largest credit rating agencies.
    On May 26, 2020, updated FAQs expanded the universe of 
acceptable credit rating agencies beyond just the three largest 
firms, but two ratings are still required, with one from one of 
the three largest firms. In addition, the updated FAQs omit 
certain Securities and Exchange Commission registered NRSROs.
    Please explain the process by which the Federal Reserve 
determined the NRSRO ratings it will accept and the two rating 
requirement, including that one of the two required ratings be 
from of the three largest firms. Also, does the Federal Reserve 
intend to announce additional updates or whether it will expand 
the universe of acceptable NRSROs?
    Furthermore, given that thousands of companies are sole-
rated by a credit rating agency that is not one of the three 
largest, and under the FAQ, the Federal Reserve will not accept 
a second rating from one of the three largest firms assigned 
after March 22, 2020, will those companies be ineligible for 
every Federal Reserve lending facility?
    Finally, why did the Federal Reserve initially limit major 
credit rating agencies to the three largest NRSROs despite the 
long-standing policy goals, in particular since the 2008 
financial crisis, to avoid reliance solely on ratings and 
reinforcing the market concentration of those firms?

A.9. The emergency lending facilities were established to 
support the flow of credit to households, businesses, and 
communities. In addition, under the law, the loans the Federal 
Reserve extends must be satisfactorily secured and sufficiently 
protect taxpayers from loss.
    The Federal Reserve's initial priority was to announce the 
establishment of these facilities as quickly as possible, and 
therefore the facilities first used credit ratings from only 
the three largest nationally recognized statistical rating 
organizations (NRSROs), given that the most widespread credit 
ratings used are from these three NRSROs.
    To promote the flow of credit in a manner consistent with 
the law, the Federal Reserve undertook an analysis to determine 
whether to expand the list of eligible NRSROs. As part of this 
analysis, the Federal Reserve considered the design and focus 
of each facility, and the role that each NRSRO plays in the 
relevant market. Specifically, the Federal Reserve sought to 
balance the benefits of using ratings from the NRSROs most 
relied on by investors with the need to ensure broad access to 
our programs. That analysis led the Federal Reserve to include 
three additional NRSROs in its facilities. The Federal Reserve 
hopes this change expands access to its facilities, while 
continuing to protect against taxpayer losses. The Federal 
Reserve will continue to monitor its facilities to ensure they 
are working as intended.

Q.10. The President recently stated he supports ``looking 
into'' banks committed to no longer investing in oil and gas 
drilling in the Arctic. Has the President discussed this with 
you or someone at your agency? Have you or anyone at your 
agency started any investigation, or initiated any proceeding 
to ``look into'' banks which have committed to not investing in 
Arctic oil and gas development?

A.10. It is not the practice of the Federal Reserve to confirm, 
or deny, whether we have commenced an examination or civil 
investigation involving a particular supervised financial 
institution.
    The Federal Reserve recognizes the importance of ensuring 
public access to financial services for all legal businesses in 
an environment that promotes trust and confidence. The Federal 
Reserve's supervisory responsibilities over the banking system 
generally are discharged with the objective of ensuring the 
safety and soundness of the financial system. In exercising 
these responsibilities, the Federal Reserve does not regulate 
decisions by a banking organization with respect to the types 
of financial services the organization chooses to furnish or 
not to furnish, so long as the organization's activities are 
conducted prudently and in compliance with applicable law.

Q.11. Have you limited funds appropriated by Congress through 
the CARES Act, or any other law, to banks that have committed 
to stop financing Arctic oil and gas development?

A.11. The determination of how funds are appropriated under the 
CARES Act with regard to section 13(3) facilities is made by 
the Secretary. As required by section 13(3) of the Federal 
Reserve Act, all of our emergency lending facilities are broad 
based. In addition, they each have neutrally defined 
eligibility requirements. Neither the eligibility criteria, nor 
any other term or condition of any of our facilities in any way 
relates to bank actions with respect to Arctic oil and gas 
development.

Q.12. Have you been directed by anyone, up to and including the 
President, to use the authorities and resources at your 
disposal to tip the scales in any way regarding banks or other 
investors with commitments to not finance new development in 
the Arctic?

A.12. As noted, the section 13(3) facilities established by the 
Federal Reserve with the support of the Secretary have 
neutrally defined eligibility requirements intended to help the 
real economy and in particular, households and businesses, 
respond to the financial hardships resulting from the impact of 
COVID-19 and efforts to contain it. I have not been directed by 
any person to take any action relating to commitments to not 
financing new development in the Arctic.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                     FROM JEROME H. POWELL

Q.1. Many in Congress have expressed concern about the impact 
of job loss and unemployment upon low-income workers, and the 
Federal Reserve's Report of the Well Being of US Households in 
2019 found that 39 percent of Americans with a household income 
of less than $40,000 had seen at least one job loss in March. 
However, the report also stated that most workers expected 
their job losses to be temporary, with nine in 10 people who 
were furloughed or who had lost a job saying that their 
employer indicated that they would return to their job at some 
point.
    As you stated in the hearing, ``where people are unemployed 
for long periods of time, that can permanently weigh on both 
their careers and their ability to go back to work, and also 
weigh on the economy for years.'' While unemployment benefits 
are an important source of needed liquidity for displaced 
workers and can smooth consumption, having workers continue to 
be unemployed for longer than necessary may be harming our 
ability to quickly recover and restore long-term income 
stability. A recent University of Chicago working paper found 
that 68 percent of unemployed workers who are eligible for UI 
will under the CARES Act receive benefits which exceed lost 
earnings, and that the median wage replacement rate under the 
CARES Act is 134 percent of prior wages.
    How would you expect long-term (beyond July 31st, 2020) 
wage replacement rates above 100 percent to impact efficient 
labor reallocation and an eventual economic recovery?
    Would you expect a targeted proportional system of 
unemployment benefits that caps wage replacement rates at 100 
percent to sufficiently smooth consumption for displaced 
workers?

A.1. In the current economic environment, it is difficult to 
assess the effects of high replacement rates on efficient labor 
reallocation. Much depends on what the efficient level of 
reallocation is at present, and that is extremely difficult to 
ascertain. For example, to the extent that layoffs are 
temporary and workers remain attached to their prior employers, 
reallocation will not be efficient. The July employment report 
showed that over 70 percent of those who have lost their jobs 
are on temporary layoff, which is a very high number by 
historical standards. Whether temporary layoffs will remain 
elevated (and for how long) is hard to judge.
    The level of efficient reallocation may also be low 
currently because employment relocation-a necessary part of 
many reallocations-is difficult for public health reasons. In 
addition, to the extent that a wage replacement rate is only 
temporarily high, it may not reduce efficient reallocation by 
much because in a depressed and uncertain labor market, many 
unemployed individuals will not want to pass up an opportunity 
of steady, gainful employment that may not come again soon.
    A targeted proportional system of unemployment benefits 
that caps wage replacement rates at 100 percent may not 
sufficiently smooth consumption for some families. For example, 
some families may have lost income that is not covered by 
unemployment insurance. In addition, families that are also 
incurring unusually large health-related or other emergency 
expenditures may struggle to maintain their typical 
consumption.

Q.2. I strongly support the Federal Reserve's efforts to 
provide liquidity to midsize companies through the Main Street 
facility. It is important for the Federal Reserve to think 
carefully about how that facility will be governed. In 
particular, commercial lenders typically gain certain rights 
when a loan becomes troubled. While it is reasonable for the 
Federal Reserve to have similar rights with respect to the loan 
participations it acquires through the Main Street facility, it 
must avoid having politics injected into lending decisions.
    To that end, what steps is the Federal Reserve taking to 
ensure that any decisions it makes as a lender under the Main 
Street facility will be free from political influence?

A.2. Under the Main Street Lending Program (Main Street), the 
Federal Reserve Board authorized the Federal Reserve Bank of 
Boston to establish a special purpose vehicle (SPV) to purchase 
participations in eligible loans originated by eligible 
lenders. Lending decisions will be made by eligible lenders, 
which will apply their own underwriting standards when 
evaluating the creditworthiness of a borrower, in addition to 
the minimum requirements set out in facility term sheets. The 
Main Street Loan Participation Agreement \1\ sets out terms 
governing the Main Street SPV's voting rights with respect to 
its participation in Main Street loans, both during the life of 
the loans and in work-out scenarios. In general, the Loan 
Participation Agreement contains commercially standard terms, 
adjusted as appropriate for the unique features of Main Street. 
\2\ While the SPV has the right to vote on specific core 
matters relating to the administration of the loan, eligible 
lenders will retain non-core rights and are expected to service 
each Main Street loan in accordance with the standard of care 
set out in the Loan Participation Agreement (i.e. to exercise 
the same duty of care in approaching such proceedings as it 
would exercise if it retained a beneficial interest in the 
entire loan). Consistent with Section 13(3) of the Federal 
Reserve Act and the Federal Reserve's obligations under the 
Coronavirus Aid, Relief, and Economic Security Act (CARES Act), 
the Main Street SPV will make commercially reasonable decisions 
to protect taxpayers from losses on Main Street loans and will 
not be influenced by non-economic factors when exercising its 
voting rights under the Loan Participation Agreement, including 
with respect to a borrower that is the subject of a work-out or 
restructuring. \3\ Further information on the Main Street 
facilities and the criteria for eligible lenders can be found 
at www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.
---------------------------------------------------------------------------
     \1\ The Main Street Loan Participation agreement and other legal 
forms and agreements can be found at https://www.bostonfed.org/
supervision-and-regulation/supervision/special-facilities/main-street-
lending-program/information-for-lenders/docs.aspx.
     \2\ Among other deviations from market-standard terms, the 
Participation Agreement gives the Main Street SPV additional rights 
that can be used to prevent any reduction in the principal amount of 
the portion of any Main Street loan that is participated to the Main 
Street SPV, as prohibited under section 4003(d)(3) of the CARES Act.
     \3\ See Frequently Asked Questions J.4-J.6 available at https://
www.bostonfed.org/mslp-faqs.

Q.3. Please respond to the following regarding flows of prime 
money market fund (PMMF) liquidity in March 2020:
    What were the gross redemptions from publicly offered PMMFs 
from March 11 to March 18, 2020? For comparison, what were the 
gross redemptions from PMMFs from January 13 to January 17, 
2020; and also from October 11 to October 18, 2019?
    Separately, for each of the above three time frames, please 
provide the gross purchases into PMMFs.
    Separately, for each of the above three time frames, please 
break the answer down between gross redemptions or purchases, 
as the case may be, of PMMFs with stable NAVs open only to 
natural person investors and PMMFs with fluctuating NAVs open 
to both natural persons and non-natural persons.

A.3. In mid-March 2020, amid very large outflows from prime 
money market funds (MMFs), institutional funds (which are open 
to investors other than ``natural persons'') experienced the 
largest net outflows. \4\ From March 11 to March 18, 2020, when 
prime MMFs saw outflows totaling $85 billion, institutional 
prime MMFs had $67 billion in outflows. Retail prime MMFs, 
which are open only to natural persons and thus represent a 
different segment of the market, had $19 billion in outflows in 
this time frame.
---------------------------------------------------------------------------
     \4\ Net flows are gross purchases less gross redemptions. Net 
flows provide the best overall representation of the pressure arising 
from investor flows on money market funds to buy assets (when net flows 
are positive) or sell assets (when net flows are negative). We do not 
separately analyze data on gross purchases and gross redemptions for 
money market funds. The Securities and Exchange Commission collects 
data on gross purchases and gross redemptions for money market funds.
---------------------------------------------------------------------------
    From January 13 to January 17, 2020, prime MMFs had net 
inflows of $1.6 billion: approximately $0.2 billion into 
institutional funds and $1.3 billion into retail funds. From 
October 11 to October 18, 2019, prime MMFs had net inflows of 
$10 billion: approximately $6 billion into institutional funds 
and $4 billion into retail funds.
    Institutional prime MMFs have consistently experienced 
heavier outflows than retail prime MMFs in episodes of stress, 
including in mid-March 2020, and also during the 2008 run on 
MMFs. Heavier outflows from institutional MMFs may occur 
because their shareholders have more resources to monitor funds 
carefully and may face strong incentives to avoid losses or 
liquidity constraints on their shares.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
                     FROM JEROME H. POWELL

Q.1. Vice Chair Quarles mentioned in a recent hearing before 
this committee that the Federal Reserve has closely studied the 
impact of the COVID-19 pandemic on the banking system and that 
such analysis will inform each bank's Stress Capital Buffer.
    While I appreciate the Board's efforts on this front, many 
of the macroeconomic effects of COVID-19 weren't fully 
reflected in the financial services sector until after the 
Board's initial COVID-19 analysis had been completed.
    For the sake of transparency and so that financial 
institutions can benefit from the fullness of understanding of 
how the Board views the impact of the COVID-19 pandemic on bank 
capital, will the Board release its pandemic analysis in a 
timely fashion?

A.1. On June 25, the Federal Reserve Board (Board) released the 
results of its stress tests for 2020 and additional sensitivity 
analyses that the Board conducted to assess the resiliency of 
large banking organizations under three hypothetical recession 
scenarios that could result from COVID-19. In the three 
scenarios, the unemployment rate peaked at between 15.6 percent 
and 19.5 percent, which is significantly higher than any of the 
Board's pre-COVID-19 stress test scenarios.
    The Board also released the results of its full stress 
test, which was designed before COVID-19. The Board will use 
the results of that test to set the new stress capital buffer 
(SCB) requirement for large banking organizations, which will 
take effect, as planned, in the fourth quarter.
    In addition to releasing the results of the test, the Board 
has determined that the changes in financial markets and the 
macro-economic outlook could have a material effect on each 
firm's risk profile and financial condition. The Board is 
therefore requiring large banking organizations to update and 
resubmit their capital plans later this year to reflect current 
stresses, which will help firms re-assess their capital needs 
and maintain strong capital planning practices during this 
period of uncertainty. The Board will conduct additional 
analysis each quarter to determine if adjustments to this 
response are appropriate.

Q.2. Dodd-Frank requires that banks' annual stress test include 
four scenarios but the Stress Capital Buffer is based on the 
results for just one of those scenarios--the Supervisory 
Severely Adverse scenario. How does the Board believe financial 
institutions should use the other three scenarios when the 
Supervisory Severely Adverse scenario sets the binding 
requirement in the Stress Capital Buffer?

A.2. Large banking organizations are subject to four scenarios 
in the Board's stress testing and capital planning program: the 
supervisory severely adverse scenario, the supervisory baseline 
scenario, the Bank Holding Company (BHC) baseline scenario and 
the BHC stress scenario. The SCB requirement is calculated 
based on the results of the supervisory severely adverse 
scenario in the Board's annual stress test, but a large banking 
organization's capital planning process should be informed by 
all the information included in the results of the four 
scenarios. A firm's risk identification and capital planning 
process also includes designing its own scenario. Further, the 
Board's supervisory assessment of capital planning is evaluated 
in part from the results of the stress tests, including those 
from all applicable scenarios.

Q.3. I understand that the Stress Capital Buffer has integrated 
the Board's regulatory capital rule with the Comprehensive 
Capital Analysis and Review (CCAR) framework. As a result, CCAR 
now serves as a way for banks to calculate the Stress Capital 
Buffer required to cover potential losses. Following this 
integration, the Board has taken a step forward to remove the 
quantitative objection to capital distributions since the 
Stress Capital Buffer now determines capital distributions.
    What will the Board's objectives be for CCAR in the future 
following these changes? And what metrics will the Board use 
when it evaluates capital distributions in the future?

A.3. Under the SCB rule issued in March 2020, the results of 
the Federal Reserve's supervisory stress tests and firms' 
planned dividends are used to calculate a firm-specific SCB 
requirement, which informs the size of the buffer requirements 
to which each large firm is subject. A firm is subject to 
automatic distribution limitations if its capital ratios fall 
below the minimum plus buffer requirements.
    The Comprehensive Capital Analysis and Review will continue 
to be an integral part of the Board's supervisory program for 
large banking organizations, by assessing both the capital 
plans and the capital planning practices that these firms use 
to assess their capital needs.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR PERDUE
                     FROM JEROME H. POWELL

Q.1. Federal Reserve Balance Sheet--Chair Powell, this is not a 
criticism of the Federal Reserve's actions, rather more a 
question aimed at the path forward. Over the past 3 months, the 
Federal Reserve's balance sheet has expanded from $4.1 trillion 
to nearly $7 trillion today. In fact, if the Fed maximizes the 
lending powers granted under the CARES Act, the balance sheet 
can easily expand to nearly $14 trillion.
    Given the fiscal deficit that we have incurred and will 
continue to incur for the foreseeable future, have we monetized 
the national debt?

A.1. The Federal Reserve's chosen level of asset holdings is 
never intended or designed to fund the government. As always, 
the Federal Reserve's actions are guided by its mandate to 
promote maximum employment and stable prices for the American 
people, along with the responsibility to promote the stability 
of the financial system. Moreover, from the perspective of a 
consolidated government balance sheet, because the Federal 
Reserve funds its balance sheet with interest-paying reserves, 
the Federal Reserve's asset purchases represent a shortening of 
the maturity structure of government debt and not a 
monetization of the debt.
    In recent months, the Federal Reserve's asset purchases 
have been directed toward supporting the flow of credit to 
households, businesses, and State and local governments. In 
particular, as the public health crisis intensified in mid-
March 2020, the functioning of the Treasury market and the 
market for agency mortgage-backed securities deteriorated 
sharply. These markets are critical to the overall functioning 
of the financial system and to the transmission of monetary 
policy to the broader economy. If left unchecked, these strains 
could have severely aggravated what was already a very large 
shock to the financial system.
    By most metrics, liquidity in these markets greatly 
improved in short order. Accordingly-starting in early April 
2020-the Federal Reserve began to significantly slow the size 
of its purchases. Going forward, the Federal Reserve's holdings 
of securities will be determined by the needs to support market 
functioning and the flow of credit, consistent with the Federal 
Reserve's congressionally-mandated mission.

Q.2. Does the expanded Fed balance sheet and our out of control 
debt situation undermine your ability to tackle future 
inflationary pressures?

A.2. In the near term, the ongoing public health crisis will 
weigh heavily on economic activity, employment, and inflation. 
In fact, recent inflation readings have been soft and the 
Federal Open Market Committee's (FOMC) June economic 
projections show participants anticipated that the 12-month PCE 
inflation measure would likely run well below the FOMC's 2 
percent objective for some time. As a result, the FOMC expects 
to maintain the current, low Federal funds rate target range 
until it is confident that the economy has weathered recent 
events and is on track to achieve maximum employment and price 
stability.
    Of course, going forward, the FOMC will closely watch the 
incoming data on inflation and inflation expectations. At each 
future meeting, the FOMC will evaluate all data on the U.S. 
economy and choose the appropriate stance of policy to continue 
to move the economy toward its mandated objectives. As the FOMC 
noted in its recent statement, it is committed to using its 
full range of tools to support the U.S. economy in this 
challenging time, thereby promoting its maximum-employment and 
price-stability goals.

Q.3. The Great Deleveraging--In a post-Covid environment, the 
world will be flushed with debt, both private and public. Back 
in January, the Institute of International Finance projected 
global debt to be at $253 trillion or 322 percent of GDP. I 
cannot imagine how much we will be facing in January 2021.
    We have failed to learn the lessons of the past crisis and 
while household debt has dropped, we have failed to control the 
excesses in government spending and cheap money propagated 
asset bubbles.
    Deleveraging will be painful and exceptionally so for the 
lower bounds of our economy. In your view, what are indicators 
that you are looking for before you would recommend fiscal 
tightening and what are recommendations that you would like to 
see beyond monetary policy that would assist in removing our 
dependency from this glut of debt?

A.3. The details of fiscal policy decisions are for elected 
representatives, who hold the powers of taxation and spending. 
While it is important for fiscal policymakers to take actions 
over time that put the Federal budget and debt on a sustainable 
path in the longer run, the time to make that a top priority is 
when the economy is strong, and unemployment is low.

Q.4. The Fed and Congress has flooded the market with cheap 
credit to prevent the wide scale collapse of the economy, I am 
bothered by colleagues who are seeking to widen the scale of 
the intervention or attempting to pick winners and losers. How 
do we avoid the path of Japan or Europe where their 
interventions in the past recessions have created zombie 
companies or zombie industrial sectors?

A.4. Our 13(3) facilities are intended to function as backstops 
to the private markets, with pricing designed to encourage 
borrowers to use private financing if it is available. The 
tools that the Federal Reserve is using under its 13(3) 
authority are for times of emergency such as now, and we will 
put these tools back in the toolbox when economic and financial 
conditions improve. Our 13(3) facilities are designed to have 
broad, neutrally defined eligibility requirements and to lend 
to borrowers that were in sound condition prior to the onset of 
COVID-19.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                     FROM JEROME H. POWELL

Q.1. As I mentioned in the hearing, I am concerned that 
companies in need of financial assistance do not meet the 
eligibility criteria for the existing Federal Reserve (Fed) and 
Treasury programs. The Fed's programs are largely limited to 
investment grade (IG) companies with certain leverage criteria 
that gets harder to satisfy the longer the pandemic goes. These 
programs have excluded otherwise well run companies that are 
not IG, or somehow don't fit the specific criteria--companies 
that are sometimes even deemed essential by the Cybersecurity 
and Infrastructure Security Agency within the Department of 
Homeland Security.
    What is the Federal Reserve and Treasury doing to help 
well-managed non IG companies that have weathered the initial 
storm without any government assistance, but may need access to 
liquidity in the next couple of months?

A.1. Section 13(3) of the Federal Reserve Act and the Federal 
Reserve Board's (Board) Regulation A require that a lending 
Reserve Bank be secured to its satisfaction and that the 
collateral be assigned a lendable value. The eligibility 
criteria for creditworthiness, including the requirement that 
eligible companies in the corporate credit facilities be 
investment grade, help satisfy this requirement and 
appropriately protect taxpayers from the risk of loss 
associated with the loan. The facilities broadly seek to 
support creditworthy companies that rely on capital markets to 
fund their operations during unusual and exigent circumstances. 
While our corporate credit facilities are designed primarily to 
support markets that serve investment grade companies, we 
wanted to prevent a gulf opening up between those markets and 
the other markets that serve high-yield issuers. Therefore, the 
corporate credit facilities are open to so-called ``fallen 
angels''--companies that would have been investment grade but 
for the COVID-19 shock. The Secondary Market Corporate Credit 
Facility (SMCCF) is also purchasing a limited quantity of high-
yield exchange traded funds (ETFs). Support to the market for 
issuers that access the facility also supports the credit 
markets more broadly, including for those that do not access 
the facility or are not eligible to access the facility. In 
addition, noninvestment grade companies may be eligible to 
borrow under the Main Street Lending Program if the lending 
bank's internal risk rating of the company is equivalent to a 
supervisory rating of ``pass.'' The Federal Reserve is 
monitoring conditions closely and may reevaluate the terms and 
conditions of facilities as needed.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                     FROM JEROME H. POWELL

Q.1. With respect to qualifying eligibility to participate in 
the Primary Market Corporate Credit Facility (PMCCF) to those 
companies that have a rating from the largest nationally 
recognized statistical rating organization (NRSROs)
    What is the basis for treating smaller NRSROs differently 
from the largest NRSROs, particularly in light of the fact that 
their regulator, the SEC, does not differentiate among them?
    By limiting eligibility in the PMCCF to only those 
companies that have investment grade ratings from one of the 
three largest NRSROs, aren't you effectively limiting access to 
these important sources of funding to only the Nation's largest 
companies?
    Is that consistent with the goals and objectives of the 
CARES Act and the other Fed/Treasury programs that are 
addressed to the crisis?

A.1. The emergency lending facilities, including the Primary 
Market Corporate Credit Facility (PMCCF), were established to 
support the flow of credit to households, businesses, and 
communities. In addition, under the law, the loans the Federal 
Reserve extends must be satisfactorily secured and sufficiently 
protect taxpayers from loss.
    Our initial priority was to announce the establishment of 
these facilities as quickly as possible, and therefore the 
facilities, including the PMCCF, first used credit ratings from 
the three largest nationally recognized statistical rating 
organizations (NRSRO), given that the most widespread credit 
ratings used are from these three NRSROs.
    Consistent with our objectives to promote the flow of 
credit in a manner consistent with the law, the Federal Reserve 
undertook an analysis to determine whether to expand the list 
of eligible NRSROs. As part of this analysis, we considered the 
design and focus of each facility, and the role that each NRSRO 
plays in the relevant market. Specifically, we sought to 
balance the benefits of using ratings from the NRSROs most 
relied on by investors with the need to ensure broad access to 
our programs. That analysis led the Federal Reserve to include 
three additional NRSROs in its facilities. Our hope is that 
this change expands access to its facilities, while continuing 
to protect against taxpayer losses. We will continue to monitor 
the facilities to ensure they are working as intended.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR MCSALLY
                     FROM JEROME H. POWELL

Q.1. Consumer spending is 70 percent of GDP, and much of that 
is supported by consumer credit. Data shows that the demand for 
online personal loans remains high, but the liquidity has been 
badly disrupted. As a result interest rates are increasing on 
personal loans. Do you have a timetable for the Federal Reserve 
adding at least the highest rating grade for personal loans to 
the TALF program?

A.1. As you note, an individual or family's ability to purchase 
goods and services depends crucially on their ability to access 
credit at affordable terms. Indeed, that is a key motivation 
for the Term Asset-Backed Securities Loan Facility (TALF) 
program. TALF-eligible loan collateral includes several types 
of asset-backed securities (ABS) that provide key support for 
consumer spending, including auto, credit card, and student 
loan ABS. In determining the types of collateral that are 
eligible for TALF loans, the Federal Reserve Board (Board) 
considers whether accepting an asset class will provide 
material support to the economy, such as by facilitating 
consumer spending. The Board also considers whether inclusion 
of the asset class is appropriate under the restrictions of 
section 13(3) of the Federal Reserve Act. For example, the 
Board and Reserve Banks must take steps to ensure the 
protection of the taxpayer, including by assigning a ``lendable 
value to all collateral.''
    Personal loan ABS may not be good candidates for the TALF 
given these restrictions. Unlike auto, credit card, and student 
loan ABS, personal loan ABS is a fairly new asset class, and 
comprehensive information is not available about the 
performance of personal loan ABS in stressed economic periods. 
Likewise, only a small share of personal loan ABS is routinely 
rated triple-A by the rating agencies.
    The Board will continue to evaluate the feasibility of 
adding other asset classes to or expanding the scope of 
existing asset classes eligible for the TALF.

Q.2. It has come to our attention that borrowers of commercial 
mortgage-backed securities, whose properties have been shut 
down by government public safety precautions, are under undue 
significant financial hardship because they are stuck between 
tenants that are not paying and mortgage servicers who are not 
offering flexibility. These are owners of hotels, shopping 
centers and certain housing entities. They are extremely 
worried about their ability to meet their financial obligations 
over a protracted time period with no rents coming in. There is 
not a clear regulatory framework for CMBS but the concerns 
remain.
    What are you doing to help commercial real estate and other 
industries that were excluded from the Federal Reserve's 
facilities programs?
    Would you consider a plan to utilize the remaining funding 
allocated to the Treasury Department under Title IV of the 
CARES Act to support those borrowers?
    Do you think it would be appropriate to change the leverage 
constraints so the facilities are more effective in providing 
assistance to commercial real estate?
    What measures are you planning to take to ensure lenders 
that utilize the TALF program provide appropriate relief to 
borrowers to ensure that permanent jobs loss does not incur as 
a result of imminent foreclosures due to the lack of 
forbearance being granted in the CMBS market?

A.2. The Federal Reserve is closely monitoring the situation in 
the commercial mortgage-backed securities (CMBS) market and the 
commercial real estate market more broadly and recognizes the 
current challenges in the market. The actions taken by the 
Federal Reserve to support the broader economy have alleviated 
some of the strains in the commercial real estate market. The 
Federal Reserve's purchases of Agency CMBS, as part of open-
market operations, and the inclusion of legacy, non-agency 
CMBS, as TALF-eligible collateral, have improved spreads and 
liquidity in the CMBS market. The Main Street Lending Program 
(Main Street) and the Paycheck Protection Program Liquidity 
Facility have helped provide small and medium-sized businesses 
financing to maintain operations, including paying rent to 
their landlords. The Corporate Credit Facilities are also 
providing support to some segments of the commercial real 
estate industry. The Federal Government and the Federal Reserve 
continue to be willing to adjust the parameters of these 
programs to allow for more flexible use of these programs by 
borrowers and financial institutions.
    Even with these actions, as you note, certain commercial 
real estate borrowers continue to experience significant 
distress. For example, since late February 2020, the lodging 
and retail sectors have experienced precipitous declines in 
demand as a result of COVID-19. In June, looking only at 
mortgages funded by CMBS, borrowers accounting for about 24 
percent of mortgages in the lodging sector and 18 percent of 
mortgages in the retail sector were more than 30 days 
delinquent. Other sectors--for example, the multi-family 
sector--have experienced less-severe increases in 
delinquencies. However, the Federal Reserve's main tool-
lending-may not be an effective solution for commercial 
properties that have suffered large revenue losses and already 
have large debt burdens. Loans extended under emergency lending 
facilities under Section 13(3) of the Federal Reserve Act--
including those facilities that utilize funding allocated to 
the Department of the Treasury under Title IV of the 
Coronavirus Aid, Relief, and Economic Security Act (CARES 
Act)--are generally not subordinate to other debt, and the 
Federal Reserve must take steps to ensure that the taxpayer 
will be repaid. In addition, many commercial property owners 
are barred by their loan agreements from taking on more debt.
    Regarding TALF, the program is designed to support the flow 
of credit to households and businesses by providing liquidity 
to the ABS market. TALF accepts as collateral triple-A non-
agency CMBS issued before March 23. TALF has been effective in 
achieving its objectives, as evidenced by the significant 
narrowing of CMBS spreads since its announcement. However, the 
program is not an appropriate vehicle to address forbearance in 
the non-agency CMBS market. In a typical CMBS structure, 
decisions about loan modifications are made by the special 
servicer appointed by the holders of the junior bonds, not by 
the triple-A bondholder. The TALF borrower, therefore, has 
little influence over the modification decisions made by the 
CMBS trust. When a securitization already exists and is trading 
in the marketplace, changing the rules of its pooling and 
servicing agreement is extremely difficult. Further, imposing 
additional restrictions on which CMBS are eligible collateral 
for TALF loans could run counter to the program's goals of 
increasing market liquidity.
    We are committed to using our tools to help employers get 
through the current difficult period. We will continue to 
monitor economic conditions, including those in commercial real 
estate, as well as the efficacy of existing facilities. We will 
consider changes in our approach as warranted by developments.

Q.3. Short-term funding provisions are essential for nonprofits 
right now, especially those with more than 500 employees that 
are not eligible for the Paycheck Protection Program. 
Nonprofits provide critical services to the most vulnerable. 
Nonprofits often lack the ability to raise funds the way for-
profit enterprises can, and taking on additional debt can 
severely affect the services nonprofit organizations provide. 
What actions is Federal Reserve and Treasury considering for 
nonprofits employers with between 500 and 10,000 employees?

A.3. Nonprofit organizations are a critical part of our 
economy, employing millions of people, providing essential 
services to communities, and supporting innovation and the 
development of a highly skilled workforce. We announced on June 
15 that we would be seeking public feedback on a proposal to 
expand Main Street to provide access to credit for nonprofit 
organizations described in sections 501(c)(3) and 501(c)(19) of 
the Internal Revenue Code that meet minimum eligibility 
criteria. \1\ The Board received comments from a wide range of 
stakeholders, and in response, on July 17, we announced revised 
term sheets that expanded the range of nonprofit organizations 
eligible to obtain Main Street loans. Under the updated terms, 
the Federal Reserve will offer loans to small and medium-sized 
nonprofits that were in sound financial condition before COVID-
19. Nonprofit organizations will need to meet various 
eligibility criteria to qualify, including financial 
eligibility criteria based on operating performance, liquidity, 
and ability to repay debt. For additional information on the 
proposed nonprofit facilities, please see the facility term 
sheets. \2\
---------------------------------------------------------------------------
     \1\ www.federalreserve.gov/newsevents/pressreleases/
monetary20200615b.htm
     \2\ For the Nonprofit Organization Expanded Loan Facility term 
sheet, see https://www.federalreserve.gov/newsevents/pressreleases/
files/monetary20200717a1.pdf. For the Nonprofit Organization New Loan 
Facility term sheet, see https://www.federalreserve.gov/newsevents/
pressreleases/files/monetary20200717a2.pdf.
---------------------------------------------------------------------------
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAMER
                     FROM JEROME H. POWELL

Q.1. There are over 6,200 nonprofits that employ more than 500 
workers (according to GuideStar), but they are not eligible for 
the forgivable loans established in the CARES Act. Nonprofit 
organizations with more than 500 employees employ over 25 
percent of the nonprofit workforce or over 3 million Americans. 
Congress included nonprofits in the Main Street Lending 
Program, but the Federal Reserve has stated that nonprofits are 
not currently eligible.
    As a result, there have not been any relief loan options 
provided to charities with more than 500 employees. I have 
heard from many social service groups who have seen an increase 
in demand as well as increased costs associated with keeping 
staff and clients safe. I have in hand a letter from several 
voluntary health charities, such as Alzheimer's Association, 
American Heart Association, American Lung Association, and 
American Cancer Society, who are working overtime to support 
patients and families most at risk of contracting COVID-19 or 
developing dangerous complications and not able to access any 
of the forgivable loans.

A.1. Nonprofit organizations are a critical part of our 
economy, employing millions of people, providing essential 
services to communities, and supporting innovation and the 
development of a highly skilled workforce. We announced on June 
15 that we would be seeking public feedback on a proposal to 
expand the Main Street Lending Program (Main Street) to provide 
access to credit for nonprofit organizations described in 
sections 501(c)(3) and 501(c)(19) of the Internal Revenue Code 
that meet minimum eligibility criteria. \1\ The Federal Reserve 
Board received comments from a wide range of stakeholders, and 
in response, on July 17 we announced revised term sheets that 
expanded the range of nonprofit organizations eligible to 
obtain Main Street loans. Under the updated terms the Federal 
Reserve will offer loans to small and medium-sized nonprofits 
that were in sound financial condition before COVID-19. 
Nonprofit organizations will need to meet various eligibility 
criteria to qualify, including financial eligibility criteria 
based on operating performance, liquidity, and ability to repay 
debt. For additional information on the proposed nonprofit 
facilities, please see the facility term sheets. \2\
---------------------------------------------------------------------------
     \1\ www.federalreserve.gov/newsevents/pressreleases/
monetary20200615b.htm
     \2\ For the Nonprofit Organization Expanded Loan Facility term 
sheet, see https://www.federalreserve.gov/newsevents/pressreleases/
files/monetary20200717a1.pdf. For the Nonprofit Organization New Loan 
Facility term sheet, see https://www.federalreserve.gov/newsevents/
pressreleases/files/monetary20200717a2.pdf.
---------------------------------------------------------------------------
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                     FROM JEROME H. POWELL

Q.1. As you may know, CNBC has reported that the 
``Congressional Budget Office projects GDP dropping 38 percent 
in the second quarter as 26 million Americans remain 
unemployed.''
    In light of these projections, are the Federal Reserve and 
the Department of the Treasury considering either expanding the 
forthcoming Main Street Lending Program or creating a different 
program to facilitate lending to U.S. businesses with more than 
15,000 employees so that they may also get assistance with 
keeping workers on the job?

A.1. The employee size and revenue eligibility metrics under 
the Main Street Lending Program (Main Street) were adopted to 
enable the program to support small and medium-sized businesses 
that are unable to receive sufficient assistance through other 
programs, such as the Small Business Administration's Paycheck 
Protection Program, or that may not have reached the scale 
needed to issue the kinds of capital market instruments that 
would be purchased under the Federal Reserve's Primary Market 
Corporate Credit Facility (PMCCF). Larger companies may wish to 
consider whether the PMCCF, which extends credit to Coronavirus 
Aid, Relief, and Economic Security Act (CARES Act)-eligible 
businesses without imposing restrictions related to revenues or 
number of employees, meets their needs. Like Main Street, 
borrowers under the PMCCF must meet facility-specific 
eligibility criteria. As of June 29, the PMCCF is operational 
and available for use.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
             SENATOR MENENDEZ FROM JEROME H. POWELL

Q.1. The Municipal Liquidity Facility only offers loans that 
must be paid back in three years. All of the private market 
business lending facilities offer four year lending, even 
though the businesses borrowing from those facilities could 
pose a greater credit risk to taxpayers than States and 
localities.
    What is the rationale for offering States and localities a 
shorter loan term than private corporations?
    Does the Federal Reserve expect that absent additional 
assistance from the Federal government, the fiscal pressures on 
States and localities will still be there 3 years from now?

A.1. The purpose of the Municipal Liquidity Facility (MLF) is 
to restore market functioning by increasing the availability of 
funding to eligible issuers through purchases of their short-
term notes, so that municipalities can better manage cash flow 
pressures in order to continue to serve their communities. The 
36-month maturity limit reflects the purpose of the MLF to 
provide near-term financing to eligible issuers facing severe 
liquidity constraints resulting from the increase in State and 
local government expenditures related to COVID-19 and the 
decrease and delay of certain tax revenue, while allowing 
eligible issuers access to funding over more than one budget 
cycle. By addressing the cash management needs of eligible 
issuers, the MLF also was intended to encourage private 
investors to reengage in the municipal securities market, 
including across longer maturities. With the MLF and other 
facilities in place as a backstop to the private market, many 
parts of the municipal bond market have significantly recovered 
from the unprecedented strains experienced earlier this year. 
Municipal bond yields have declined considerably, issuance has 
been robust in recent months-particularly for issuers rated AA 
or higher who make up about 80 percent of the municipal 
securities market--and market conditions have improved. \1\
---------------------------------------------------------------------------
     \1\ See Board of Governors of the Federal Reserve System (2020), 
Financial Stability Report (Washington: Board of Governors, May), 
https://www.federalreserve.gov/publications/2020-may-financial-
stability-report-purpose.htm.
---------------------------------------------------------------------------
    We will continue to closely monitor conditions in the 
primary and secondary markets for municipal securities and will 
evaluate whether additional measures are needed to support the 
flow of credit and liquidity to State and local governments.

Q.2. Similarly, the rates the Federal Reserve is offering to 
investment-grade municipalities isn't far below the rates the 
Federal Reserve is offering to private companies in the Main 
Street lending programs, even though municipal bonds 
historically have had much lower rates of default.
    Please explain the Federal Reserve's rationale for pricing 
the municipal lending facility at the rates specified in the 
latest term sheet.
    Do you believe that the pricing could discourage States and 
municipalities from using the facility and potentially 
stigmatize those that choose to do so--making it harder for 
those who borrow from the facility to go back to the private 
market in the future?

A.2. Under Section 13(3) of the Federal Reserve Act and the 
Federal Reserve Board's (Board) Regulation A, the interest rate 
on the eligible notes must be set at a rate that is a premium 
to the market rate in normal circumstances, affords liquidity 
in unusual and exigent circumstances, encourages repayment of 
the eligible notes, and discourages use of the facility as the 
unusual and exigent circumstances that motivated the program 
recede and economic conditions normalize. Under the Municipal 
Liquidity Facility (MLF), the pricing methodology is based on 
the overnight indexed swap (OIS) rate for a comparable maturity 
plus a fixed spread that corresponds with the ratings of the 
eligible notes and their relevant tax status. On August 11, the 
Federal Reserve Board announced revised pricing for the MLF. 
The revised pricing reduces the interest rate spread on tax-
exempt notes for each credit rating category by 50 basis points 
and reduces the amount by which the interest rate for taxable 
notes is adjusted relative to tax-exempt notes.
    The fixed spread over OIS that applies for each credit 
rating category under the MLF was chosen because it meets the 
legal requirements. Our pricing methodology adjusts the 
interest rate based on credit rating, maturity, and tax status 
because these factors affect the pricing of similar municipal 
debt in markets during normal times. In addition, the interest 
rate on the facility is set at a level that is supportive of 
borrowers facing more severe challenges. The Federal Reserve 
will monitor conditions to assess the efficacy of the facility 
and any unintended consequences.

Q.3. Please describe in detail the metrics the Federal Reserve 
will use to judge the efficacy of the Municipal Liquidity 
Facility.

A.3. On June 2, the State of Illinois became the first 
Municipal Liquidity Facility (MLF) borrower when it issued $1.2 
billion, 12-month general obligation notes to the facility at a 
rate of 3.82 percent. This is more than 100 basis points lower 
in yield than comparable short-term notes that the State issued 
in the primary market in May.
    However, the efficacy of the facility is not measured by 
take-up. The Federal Reserve established the MLF to help 
support State and local governments' ability to serve 
households and businesses in their communities. That ability 
depends crucially on access to municipal securities markets. 
With that in mind, to measure the effectiveness of the MLF, the 
Federal Reserve is closely monitoring conditions in the primary 
and secondary markets for municipal securities. In particular, 
we are monitoring liquidity conditions, market access, market 
pricing, and volatility. Since the period of heightened market 
volatility in mid-March and the announcement of the MLF, 
conditions in municipal bond markets have generally improved. 
For example, spreads on general obligation bonds, which rose 
significantly in mid-March, have steadily decreased, reflecting 
greater investor demand for these securities. Moreover, after 
depressed primary issuance activity in March and April, 
issuance activity has been robust in May and June.
    Conditions in the secondary market have also improved, with 
transaction costs and bid wanted amounts returning to more 
normal levels.

Q.4. We are now three months into the COVID-19 pandemic and are 
economy is under massive strain. More than 100,000 small 
businesses have closed their doors forever. Additionally, three 
out of four businesses have experienced declines in revenue. 
Our businesses are in a free fall and the Main Street lending 
facility could be a life line for businesses, if implemented 
properly.
    With the roll-out of the Paycheck Protection Program (PPP), 
we saw how lending institutions and the Small Business 
Administration's systems were overwhelmed by the loan demand. 
How are you preparing banks for the volume of Main Street loan 
applications they will receive? What are you doing to prepare 
your own systems for the massive loan volume?

A.4. The Federal Reserve took significant steps to prepare for 
the full roll-out of the Main Street Lending Program (Main 
Street):

    Main Street Portal. The Main Street special purpose 
        vehicle (SPV), which is managed by the Federal Reserve 
        Bank of Boston (FRBB), has contracted with a vendor to 
        serve as credit administrator. The FRBB, working with 
        this credit administrator, has created a portal to 
        register eligible lenders and facilitate intake of loan 
        participations from preregistered lenders for purchase. 
        The system has substantial on-demand computing capacity 
        and the credit administrator constantly monitors system 
        usage. The vendor has also trained call center and 
        support staff and is prepared to increase available 
        resources as needed. In addition to facilitating loan 
        intake, the online portal will also facilitate credit 
        monitoring of the portfolio during the life of the 
        loans.

    Legal Documents. In the course of our outreach 
        efforts, lenders stressed the importance of providing 
        clarity in program legal documents regarding program 
        terms, conditions, and associated liability. We have 
        worked hard to provide potential Main Street borrowers 
        and lenders with clarity and certainty regarding these 
        requirements. The FRBB has posted all of the key legal 
        documents online, including a form loan participation 
        agreement, lender registration documents, lender and 
        borrower certification and covenant documents, and a 
        set of instructions for lender-required documentation. 
        The FRBB has also established a Main Street website for 
        centralized access to information for lenders and 
        borrowers.

    Outreach. To provide potential lenders with 
        information on Main Street and to address their 
        questions in real time, the Federal Reserve has posted 
        more than 10 webinars explaining aspects of the program 
        with question and answer sessions. The Board and FRBB 
        also have established online mailboxes where members of 
        the public can submit questions. These mailboxes are 
        actively monitored, and questions submitted are 
        addressed on a bilateral basis or through guidance on 
        the program, including in the form of FAQs. To access 
        additional information, lenders and borrowers are 
        encouraged to access the Main Street website. \2\
---------------------------------------------------------------------------
     \2\ www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.

    Main Street is, of course, a credit program and not a grant 
program. Participation is a function of eligibility 
requirements and the extent to which the program terms and 
conditions are attractive to both borrowers and lenders. We 
will monitor the use of the program closely and make 
adjustments if needed in the future, including to address any 
---------------------------------------------------------------------------
operational issues.

Q.5. Are you allowing banks to limit loan applications to 
existing customers? And, if so, will they be allowed to 
prioritize their biggest customers?

A.5. Main Street includes three for-profit facilities, as well 
as two recently announced nonprofit facilities, each with 
unique features, designed to meet the needs of different types 
of borrowers, including banks' existing customers and new 
customers. The Main Street Expanded Loan Facility (MSELF) and 
Nonprofit Organization Expanded Loan Facility (NOELF) require 
that an eligible borrower have an existing term loan or 
revolving credit facility with an eligible lender. However, 
under the Main Street New Loan Facility (MSNLF), Main Street 
Priority Loan Facility (MSPLF), and Nonprofit Organization New 
Loan Facility, lenders may extend loans to new or existing 
customers. The Federal Reserve has specifically designed the 
terms and conditions of the MSNLF, MSPLF, and NONLF to allow 
for lending to new customers. With respect to the MSNLF and 
MSPLF, the Federal Reserve has issued FAQs providing guidance 
for how to apply the facilities' underwriting criteria with 
respect to new customers. We expect similar guidance will be 
available for the NONLF when that facility becomes operational.
Q.6. I have heard concerns that the earnings metrics the 
Federal Reserve and Treasury intend to use for the Main Street 
lending facilities are ill-suited for important sectors of our 
economy that employ hundreds of thousands of Americans.
    As you develop final guidance for these facilities, are you 
examining whether the Federal Reserve and Treasury could use 
additional metrics for different industries to ensure that as 
many sectors of our economy as possible can utilize the 
program?

A.6. Main Street is designed to augment the supply of loans 
made to businesses with established cash flows prior to COVID-
19 that need assistance to maintain operations and payroll 
through these current unusual and exigent circumstances. By 
focusing on bridge financing to businesses with interrupted 
operations and cash flows, Main Street both directly addresses 
the near-term needs of borrowers and supports the provision of 
credit by lenders who may find it especially challenging to 
assess near-term cash flows owing to the uncertain outlook for 
COVID-19 and economy. This is a large portion of the business 
community and business lending. Within this type of lending, 
adjusted earnings before interest, taxes, depreciation, and 
amortization (EBITDA) is a key underwriting metric used by 
lenders in evaluating the credit risk of small and medium-sized 
businesses. As a result, it is one of the factors that 
determines the maximum loan size that borrowers are eligible to 
receive within Main Street.
    The Federal Reserve also recognizes that nonprofit 
organizations' liquidity positions and ability to repay are not 
generally evaluated by lenders based on EBITDA. Understanding 
this and the critical role nonprofit organizations play in the 
economy, the Federal Reserve announced on June 15 that it would 
be seeking public feedback on a proposal to expand Main Street 
to provide access to credit for nonprofit organizations. The 
Board received comments from a wide range of stakeholders, and 
in response, on July 17 we announced revised term sheets that 
expanded the range of nonprofit organizations that would be 
eligible to obtain Main Street loans. Under the updated terms, 
the Federal Reserve will offer loans to small and medium-sized 
nonprofits that were in sound financial condition before COVID-
19. Nonprofit organizations will need to meet various 
eligibility criteria to qualify, including financial 
eligibility criteria based on operating performance, liquidity, 
and ability to repay debt.33 Additional details on the proposed 
nonprofit facilities can be found at www.federalreserve.gov/
monetarypolicy/mainstreetlending.htm.
    The Federal Reserve further recognizes that, for some 
borrowers, collateral values or other factors are more 
indicative of the ability to obtain credit than cash flows. 
Staff continue to monitor lending conditions broadly and, while 
credit conditions have tightened overall, credit appears to be 
available generally against good collateral when such 
collateral is available. If these conditions were to change 
significantly, the Federal Reserve would carefully evaluate 
whether its authorities could further support the availability 
of credit. We remain alert to the possibility that changes to 
market conditions may warrant changes to the terms and 
conditions of the Federal Reserve's emergency lending programs.

Q.7. Borrowers from commercial mortgage-backed securities 
(CMBS), like hotels, shopping centers, and housing complexes, 
attest that they are under significant financial hardship. In 
many cases, their tenants are not able to pay rent and their 
mortgage servicers are not offering flexibility. Several 
affected entities are concerned about their ability to meet 
their financial obligations over a protracted period of time.
    Does the Treasury or Federal Reserve have plans to address 
these concerns in the CMBS market, and if so, how?

A.7. The Board has been closely monitoring the situation in the 
commercial mortgage-backed securities (CMBS) market and 
recognizes the concerns that you have outlined in your 
question. Several of the Federal Reserve's initiatives to 
support the broader economy have proven beneficial to the CMBS 
market, such as the purchases of Agency CMBS as part of open-
market operations and the inclusion of legacy CMBS as TALF-
eligible collateral. Spreads and liquidity in the CMBS market 
have improved significantly since the Federal Reserve started 
these programs. Main Street and the Paycheck Protection Program 
Liquidity Facility may also support CMBS borrowers by providing 
small and medium-sized businesses financing to maintain their 
operations-including paying rent-until conditions normalize. 
Other Federal Reserve programs, such as the corporate credit 
facilities, are also providing support to some segments of the 
commercial real estate industry.
    Even with these actions, as you note, certain CMBS 
borrowers continue to experience significant distress. Since 
late February 2020, the lodging and retail sectors have 
experienced precipitous declines in demand as a result of 
COVID-19. In June, looking only at mortgages funded by CMBS, 
borrowers accounting for about 24 percent of mortgages in the 
lodging sector and 18 percent of mortgages in the retail sector 
were more than 30 days delinquent. Other sectors-for example, 
the multi-family sector-have experienced less-severe increases 
in delinquencies.
    We are committed to using our policy tools to help 
employers get through the current difficult period. However, 
loans made through a Federal Reserve facility may not be an 
effective solution for hotel and retail commercial properties 
that have suffered large revenue losses and already have large 
amounts of debt. Loans extended under the Federal Reserve's 
13(3) authority are generally not subordinate to other debt, 
and the Federal Reserve must take steps to ensure that the 
taxpayer will be repaid. In addition, many CMBS borrowers may 
be barred by their loan agreements from taking on more debt.
    We will continue to monitor economic conditions, including 
those faced by CMBS and other commercial real estate borrowers, 
as well as the efficacy of existing facilities. We will 
consider changes in our approach as warranted by future 
developments.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
                     FROM JEROME H. POWELL

Q.1. Recent data on the availability of credit suggests that it 
has not been this difficult to obtain a mortgage since 2014, 
and constraints on the availability of credit are particularly 
acute for borrowers of non-QM loans and jumbo loans. Because 
these mortgages are frequently packaged and sold as residential 
mortgage-backed securities (RMBS) to private investors, the 
recent illiquidity in secondary market private RMBS exacerbates 
the lack of funding for such mortgages.
    Non-agency RMBS is the largest asset class by volume within 
all ABS, comprising approximately 30 percent of the market, but 
is one of the few asset classes which is not currently eligible 
under the Term Asset-backed Lending Facility (TALF) program.
    Are there plans to allow AAA RMBS securities as eligible 
collateral under TALF?

A.1. In determining whether a certain type of asset-backed 
securities (ABS) should be eligible collateral for Term Asset-
Backed Lending Facility (TALF) loans, the Federal Reserve 
Board's (Board) considers whether accepting an asset class will 
provide material support to the economy and whether inclusion 
of the asset class is appropriate under the restrictions of 
section 13(3) of the Federal Reserve Act. In particular, under 
section 13(3), the Board and Reserve Banks must take steps to 
ensure the protection of the taxpayer, including by assigning a 
``lendable value to all collateral.'' To satisfy this 
restriction, we prioritize categories of ABS where a large 
share of issuance is routinely rated triple-A by the rating 
agencies and where comprehensive information is available about 
credit performance in different economic environments, 
including stressed conditions.
    As you noted, one of the largest ABS categories not 
currently eligible as TALF collateral is residential mortgage-
backed securities (RMBS), and a large share of RMBS issuance is 
typically rated triple-A by the rating agencies. However, some 
RMBS have performed poorly in times of stress, and RMBS 
collateralized by mortgages with low or nonstandard 
documentation have a particular history of underperformance. 
The types of ABS currently accepted as TALF collateral 
generally have a long history of performing well in stressed 
economic conditions, and the Board relies on that history of 
strong performance to ensure that TALF loans are made in a 
manner consistent with section 13(3).
    The Board recognizes that the current exclusion of all RMBS 
from TALF affects credit availability in some sectors of the 
mortgage market and continues to consider whether adding 
certain types of RMBS to the list of TALF-eligible collateral 
is consistent with the 13(3) requirements and the policy aims 
of the TALF. In this analysis, we are assessing separately how 
jumbo, non-QM, and re-performing RMBS measure against the 
considerations articulated above. This analysis is being 
conducted in consultation with our colleagues at the U.S. 
Department of the Treasury, which has provided a $10 billion 
equity investment in the TALF special purpose vehicle using 
funds appropriated to the Exchange Stabilization Fund under 
section 4027 of the Coronavirus Aid, Relief, and Economic 
Security Act (CARES Act).

Q.2. As many States move forward with reopening, Montana being 
one of them, what assistance and guidance are you providing 
PHAs in regards to reopening?

A.2. While direct oversight and support for public housing 
authorities (PHAs) are not under the purview of the Board, we 
are sympathetic to the challenges that PHAs face during these 
difficult times. The Federal Reserve System's Community 
Development Offices have worked to collect information about 
the economic impact of actions undertaken to respond to the 
public health crisis through outreach, data collection and 
analysis to help inform the work of agencies and community 
organizations working to support low- and moderate-income (LMI) 
populations. Through conversations with relevant stakeholders 
and a review of the results of the April and June 2020 rounds 
of the Federal Reserve System's survey of LMI communities on 
the effects of COVID-19, we know that many organizations 
providing affordable housing services are incurring significant 
unanticipated expenses. \1\ Among these unexpected expenses are 
increased cleaning and sanitization costs to protect the health 
of their residents, increased carrying costs for new properties 
or those under renovation for which construction has been 
halted, and the provision of personal protective equipment for 
their staff members.
---------------------------------------------------------------------------
     \1\ https://www.frbatlanta.org/community-development/publications/
national-COVID-19-survey
---------------------------------------------------------------------------
    The simultaneous decline in rental revenues as residents 
lose their employment has exacerbated this increase in 
expenses. Based on the Census Bureau's Household Pulse Survey 
and other sources, we know that employment and housing 
disruption are most significant for the very lowincome 
households that it is the mission of PHAs to serve. Therefore, 
we are closely monitoring conditions in affordable rental 
markets to identify any stresses that may either reverberate 
through the financial system or negatively impact renters, 
especially low-income renters.

Q.3. Would jumbo AAA RMBS and non-QM RMBS be eligible? Would 
other sub asset classes--such as reperforming loans for 
borrowers coming off a credit event--be eligible as well?

A.3. Please see response to Question 1.

Q.4. What support can Treasury lend to the Fed under TALF to 
support the housing market so that financing is available for 
self-employed or nontraditional borrowers who rely on non-QM 
mortgages, or to borrowers who live in high-cost areas who rely 
on jumbo financing?

A.4. Please see response to Question 1.

Q.5. What metrics will you use in making these determinations?

A.5. Please see response to Question 1.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                     FROM JEROME H. POWELL

Q.1. On December 13, 2019, I signed a letter to you regarding 
climate-related financial and economic risks. \1\ In this 
letter, my colleagues and I stated, ``The Fed's supervisory 
framework and analytical tools need to account for the fact 
that our financial system faces new risks from climate 
change.'' \2\
---------------------------------------------------------------------------
     \1\ Letter from Senators Schatz, Warren, Smith, Klobuchar, 
Whitehouse, Baldwin, and Harris to Federal Reserve System Chair Jerome 
Powell, December 13, 2019.
     \2\ Id.
---------------------------------------------------------------------------
    In your response, you stated, ``Congress has principally 
entrusted other agencies with the task of addressing climate 
change. However, as your letter notes, there are ways in which 
climate-related risks could have relevance for the Federal 
Reserve Board (Board) as it fulfills its mission.'' \3\ 
Additionally, earlier this year, you stated, ``The public has 
every right to expect and will expect that we will ensure that 
the financial system is resilient and robust against the risks 
of climate change.'' \4\
---------------------------------------------------------------------------
     \3\ Letter from Federal Reserve System Chair Jerome Powell to 
Senator Warren, February 10, 2020.
     \4\ Reuters, ``Fed Has a Role in Combating Climate Change Risk, 
Powell Says'', Ann Saphir, January 29, 2020, https://www.reuters.com/
article/us-usa-fed-climatechange/fed-has-a-role-in-combating-climate-
change-risk-powell-says-idUSKBN1ZT031.
---------------------------------------------------------------------------
    Given the threats of climate change on the financial 
system, \5\ please explain how you view the Federal Reserve 
Board's role in combatting the climate crisis and its 
associated economic risks.
---------------------------------------------------------------------------
     \5\ Center for American Progress, ``Climate Change Threatens the 
Stability of the Financial System'', Gregg Gelzinis and Graham Steele, 
November 21, 2019, https://www.americanprogress.org/issues/economy/
reports/2019/11/21/477190/climate-change-threatens-stability-financial-
system/.
---------------------------------------------------------------------------
    Has the Federal Reserve System hired or contracted climate 
economists to work on evaluating climate change risks? Have you 
or other senior Federal Reserve System officials been briefed 
or advised by climate scientists or climate economists inside 
or outside of government on these issues?

A.1. Economic research to understand the specific transmission 
channels between climate-related risks and the financial system 
is essential to understanding the impact of those risks on the 
Federal Reserve's mission. This research remains at an early 
stage, and the Federal Reserve is working to foster and develop 
it. These efforts are active and ongoing, and they will help us 
assess the ways climate-related risks may affect the economy, 
financial stability, and the safety and soundness of financial 
institutions. Moreover, as mentioned below, the Federal Reserve 
Board (Board) staff participate in several forums with other 
U.S. and international regulators where the evaluation of the 
effects of climate change on the financial system are 
particularly relevant.
    Regarding the second part of your question, the Federal 
Reserve does have a range of staff who conduct and publish 
academic research on climate-related financial risks; I have 
attached, as Appendix A, a list of publications by several of 
those staff with my response.

Q.2. You also stated, ``The Board and Reserve Banks are 
exploring new sources of climate-related data and computational 
resources, research projects involving existing supervisory 
data collections, and participation in conferences and 
workshops to share our efforts with the public. These efforts, 
which are in their early stages, span several areas within the 
Board and the Reserve Banks.'' \6\
---------------------------------------------------------------------------
     \6\ Letter from Federal Reserve System Chair Jerome Powell to 
Senator Warren, February 10, 2020.
---------------------------------------------------------------------------
    Please provide a detailed timeline for the Federal 
Reserve's timeline for this research, publicizing their 
findings, and operationalizing the findings in the Federal 
Reserve's supervision.

A.2. Much of the research mentioned in Appendix A has been 
published and presented in academic seminars and conferences. 
The Federal Reserve has made a concerted effort in recent years 
to make more information about supervision, regulation, and 
financial stability work available to the public. This 
engagement and transparency is especially important in an area 
of research that is still emerging, such as the analysis of 
climate-related financial risks, and we expect to make as much 
of our own research on this topic public as possible.

Q.3. Earlier this year, when asked why the Federal Reserve 
System has not joined ``dozens of other global central banks in 
the Network for Greening the Financial System, an international 
effort to better understand risks from rising temperatures,'' 
reports show that you indicated that ``it is just a matter of 
time.'' \7\
---------------------------------------------------------------------------
     \7\ Reuters, ``Fed Has a Role in Combating Climate Change Risk, 
Powell Says'', Ann Saphir, January 29, 2020, https://www.reuters.com/
article/us-usa-fed-climatechange/fed-has-a-role-in-combating-climate-
change-risk-powell-says-idUSKBN1ZT031.
---------------------------------------------------------------------------
    Will you commit to joining the multitude of foreign central 
banks and financial regulators that are focusing on climate 
risk at the Network for Greening the Financial System (NGFS)?

A.3. While the timeline of the Network for Greening the 
Financial System's (NGFS) activities is in flux as a result of 
COVID-19, the Federal Reserve remains engaged with the NGFS 
secretariat and its members, continues to participate in its 
meetings as a guest, and is following its work closely. We 
continue to discuss with the NGFS what role the Federal Reserve 
could potentially play in NGFS work, particularly as its 
steering committee considers how to align its governance 
structure with the best practices of other international 
organizations. Any role would need to be consistent with the 
mandate and scope of activities Congress has authorized for the 
Federal Reserve.

Q.4. Do you think the United States has a competitive advantage 
when it comes to leading global efforts on financial regulation 
at international coordinating bodies when the Federal Reserve 
is not a member of the NGFS?

A.4. As I described in a previous letter to you, the Federal 
Reserve has considerable expertise in understanding the impact 
of severe weather events, ranging from economic forecasting, to 
financial stability monitoring, to prudential supervision, to 
continuity of operations. I continue to believe that this 
expertise, our active participation in the emerging research 
dialogue on climate-related financial risks, and our commitment 
to evidence-based policymaking position us well to contribute 
to the assessment and measurement of climate-related financial 
risks. Our peers in other jurisdictions are working to make 
similar contributions, and we continue to benefit from their 
efforts.

Q.5. I am an original cosponsor of the Climate Change Financial 
Risk Act of 2019. \8\ This bill would create new climate risk 
scenarios for financial institution stress tests. It would 
require the Federal Reserve, along with an advisory group of 
climate experts, to develop three stress test scenarios: one 
assuming 1.5 degrees Celsius of warming above pre-industrial 
levels, one assuming 2 degrees of warming, and one assuming 
``business as usual'' warming. \9\ These tests will quantify 
how expected physical and transition risks will affect economic 
conditions, and will require financial institutions to define 
how they will adapt their practices to limit climate impacts. 
The Federal Reserve will have the power to reject plans and 
prohibit institutions from proceeding with capital 
distributions.
---------------------------------------------------------------------------
     \8\ Climate Change Financial Risk Act of 2019, S. 2903, https://
www.congress.gov/bill/116th-congress/senate-bill/2903.
     \9\ Office of Senator Schatz, ``Schatz Introduces New Legislation 
To Ensure U.S. Financial System Is Prepared for Climate Change,'' 
November 20, 2019, https://www.schatz.senate.gov/press-releases/schatz-
introduces-new-legislation-to-ensure-us-financial-system-is-prepared-
for-climate-change.
---------------------------------------------------------------------------
    Do you support the Federal Reserve conducting stress tests 
to measure resilience to climate-related financial risks? If 
not, what measures do you support to incorporate climate risk 
scenarios in overseeing large financial institutions?
    The Bank of England recently stated, ``Climate change 
creates risks to both the safety and soundness of individual 
firms and to the stability of the financial system.'' \10\ 
Accordingly, they have decided to stress test the United 
Kingdom's largest banks and insurance companies against the 
physical and transition risks associated with climate change. 
\11\ Will the Federal Reserve follow suit and develop climate-
related stress tests?
---------------------------------------------------------------------------
     \10\ Bank of England, ``Discussion Paper: The 2021 biennial 
exploratory scenario on the financial risks from climate change,'' 
December 2019, https://www.bankofengland.co.uk/-/media/boe/files/paper/
2019/the-2021-biennial-exploratory-scenario-on-the-financial-risks-
from-climate-
change.pdf?la=en&hash=73D06B913C73472D0DF21F18DB71C2F454148C80.
     \11\ Climate News Network, ``Bank of England Unveils Climate 
Stress Test'', Kieran Cooke, January 1, 2020, https://
climatenewsnetwork.net/bank-of-england-unveils-climate-stress-test/.

A.5. Federal Reserve staff and other central banks are engaged 
in research to better understand the translation of climate 
risk to economic and financial risk, as would be required to 
conduct a stress test. Further research in this new and rapidly 
evolving field is a prerequisite to any regulatory or 
supervisory steps, including any changes to stress testing 
requirements. We are committed to making as much of this 
research as public as possible to inform the common effort by 
academics and Congress to more fully understand climate-related 
---------------------------------------------------------------------------
financial risks.

Q.6. Following the Banking, Housing, and Urban Affairs 
Committee hearing on December 5, 2019, I submitted questions 
for the record for Federal Reserve System Vice Chair for 
Supervision Randal Quarles. \12\
---------------------------------------------------------------------------
     \12\ Questions for the Record from Senator Warren to Federal 
Reserve System Vice Chair for Supervision Randal Quarles, December 12, 
2019.
---------------------------------------------------------------------------
    In response to my question regarding incorporation of 
climate risks in assessing financial stability, Vice Chair 
Quarles stated, ``staff across the Federal Reserve System 
conduct extensive research on a range of issues related to the 
effects of climate change, including how climate-related risks 
can be amplified by the financial system.'' \13\ Recent 
reports, however, have described the ``likelihood that the Fed 
won't account for long-term climate risks, like stranded fossil 
fuel assets, as it directs the world's largest asset manager to 
revive the U.S. economy.'' \14\
---------------------------------------------------------------------------
     \13\ Letter from Federal Reserve System Vice Chair for Supervision 
Randal Quarles to Senator Warren, May 11, 2020.
     \14\ E&E News, ``Fed Faces Climate Test as It Tries To Rescue 
Economy'', Avery Ellfeldt, April 16, 2020, https://www.eenews.net/
stories/1062883505.
---------------------------------------------------------------------------
    Please provide specific information about the staff 
research on climate-related risks and the financial system and 
how the Federal Reserve System has incorporated staff research 
in its supervision of financial institutions.

A.6. As noted in my response to question 1a, I have attached 
Appendix A. This list of research undertaken by Federal Reserve 
System staff on climate-related financial and economic risks 
covers a wide range of sub-topics, including the effect of 
climate-related risks on asset prices, consumer spending, 
industrial production, savings behavior, credit availability, 
and fiscal outcomes. It also reflects the emerging State of 
this area of the economic literature, as well as the number of 
questions that would still benefit from careful analysis. As I 
noted in a previous letter to you, we expect to continue 
participating actively in these efforts, and to work to 
understand the transmission of climate-related risks to the 
financial system. As we understand these transmission 
mechanisms better, this research will assist us in our 
supervisory work.

Q.7. Vice Chair Quarles also stated, ``Federal Reserve staff 
and I remain in frequent contact with our supervisory 
colleagues in other jurisdictions, following closely their own 
climate-related projects.'' \15\
---------------------------------------------------------------------------
     \15\ Letter from Federal Reserve System Vice Chair for Supervision 
Randal Quarles to Senator Warren, May 11, 2020.
---------------------------------------------------------------------------
    Please provide a list of supervisory institutions in other 
jurisdictions with whom the Federal Reserve staff and you have 
communicated regarding climate-related financial risks.
    Please describe how these communications have informed the 
Federal Reserve's efforts to incorporate climate-related risks 
in its supervision of large financial institutions.

A.7. The Federal Reserve is an active member of international 
standard-setting bodies, such as the Basel Committee for 
Banking Supervision and the International Association of 
Insurance Supervisors, as well as the Financial Stability 
Board, which is chaired by Vice Chair Quarles. The membership 
of these groups includes dozens of central banks, supervisors, 
and finance ministries; each group has climate-related projects 
underway to which we are actively contributing.
    We also have attended meetings of the NGFS as a guest, and 
Federal Reserve staff have held bilateral meetings with staff 
from other central banks and supervisors on climate-related 
issues. These include staff from De Nederlandsche Bank, the 
European Central Bank, the Bank of Japan, Japan Financial 
Services Agency, and the Bank of England.
    These conversations have offered staff useful perspectives 
on the nature of the work being undertaken at foreign 
institutions, as well as the challenges that those institutions 
have faced. Further, some staff have been able to engage on 
existing and potential future research papers.

Q.8. In response to my question regarding how the Federal 
Reserve has assessed if the financial system is resilient to 
climate-related risks or taken any actions to increase 
resilience to the climate crisis, Vice Chair Quarles's response 
instead focused on near-term severe weather events, rather than 
long-term climate impacts, and stated that the Federal Reserve 
does not directly model ``how changes in temperatures over long 
periods of time affect economic activity (modeling being a 
separate matter from the extensive economic analysis of this 
question that we do).'' \16\
---------------------------------------------------------------------------
     \16\ Id.
---------------------------------------------------------------------------
    Given the significant differences between climate and 
weather, \17\ please describe how the Federal Reserve System is 
differentiating between severe weather impacts and climate 
change in its analysis of climate-related risks.
---------------------------------------------------------------------------
     \17\ New York Times, ``How the Weather Gets Weaponized in Climate 
Change Messaging'', Brad Plumer, March 1, 2019, https://
www.nytimes.com/2019/03/01/climate/weather-climate-change.html.

A.8. Changes in longer-term climate trends could affect the 
frequency, severity, location, and impact of severe weather 
events. As Appendix A reflects, Federal Reserve staff have 
undertaken a range of research to examine the effect of severe 
weather events and other natural disasters on economic and 
financial outcomes. These kinds of analyses are an important 
input into efforts to model the economic and financial effects 
of long-run climate trends. Researchers in the field have begun 
to work on this second distinct challenge, and our staff are 
---------------------------------------------------------------------------
both following closely and contributing to that work.

Q.9. Earlier this year, the Canadian government announced a 
program to provide financing for businesses in response to the 
ongoing novel coronavirus 2019 disease (COVID-19) pandemic. As 
one of the conditions for receiving funds, Canada is requiring 
that companies receiving assistance under this program ``commit 
to publish annual climate-related disclosure reports consistent 
with the Financial Stability Board's Task Force on Climate-
related Financial Disclosures, including how their future 
operations will support environmental sustainability and 
national climate goals.'' \18\
---------------------------------------------------------------------------
     \18\ Justin Trudeau, Prime Minister of Canada, ``Prime Minister 
announces additional support for businesses to help save Canadian 
jobs,'' press release, May 11, 2020, https://pm.gc.ca/en/news/news-
releases/2020/05/11/prime-minister-announces-additional-support-
businesses-help-save.
---------------------------------------------------------------------------
    Despite the significant economic impacts of the climate 
crisis, \19\ ``U.S. regulators have been slow to respond to the 
threats that a warming planet can pose to financial assets.'' 
\20\
---------------------------------------------------------------------------
     \19\ New York Times, ``Climate Change's Giant Impact on the 
Economy: 4 Key Issues'', Neil Irwin, January 17, 2019, https://
www.nytimes.com/2019/01/17/upshot/how-to-think-about-the-costs-of-
climate-change.html; Brookings Institution, ``Ten facts about the 
economics of climate change and climate policy,'' Ryan Nunn, Jimmy 
O'Donnell, Jay Shambaugh, Lawrence Goulder, Charles Kolstad, and 
Xianling Long, October 23, 2019, https://www.brookings.edu/research/
ten-facts-about-the-economics-of-climate-change-and-climate-policy/.
     \20\ Reuters, ``U.S. Regulator Homes in on Climate Risks to U.S. 
Markets'', Ann Saphir, December 11, 2019, https://www.reuters.com/
article/us-climate-change-market-risks/u-s-regulator-homes-in-on-
climate-risks-to-u-s-markets-idUSKBN1YF2D5.
---------------------------------------------------------------------------
    Will you require companies that receive money from 
taxpayers to keep workers on their payroll?

A.9. By promoting the flow of credit to households and 
business, our facilities are intended to support the provision 
of liquidity in the economy, which will help businesses 
maintain their operations and employees through this 
challenging period. Our facilities were designed in compliance 
with both the Coronavirus Aid, Relief, and Economic Security 
Act (CARES Act) and section 13(3) of the Federal Reserve Act. 
For our Main Street Lending Program, we do expect borrowers to 
make commercially reasonable efforts to maintain their 
payrolls. Overall, providing credit to businesses, large and 
small, should help to ensure that their workers can remain 
employed and paid through this very difficult period. We will 
continue to monitor our facilities to ensure they are working 
as intended.

Q.10. Do you consider climate change a threat to the stability 
of our financial system, especially in the wake of the 
coronavirus crisis?

A.10. The Federal Reserve is committed to promoting a safe, 
flexible, and stable financial system. This mandate requires us 
to examine a wide range of risks to the financial system. As I 
mentioned in my response to question 1a, economic research to 
understand the specific transmission channels between climate-
related risks and the financial system is essential to 
understanding the impact of those risks on the Federal 
Reserve's mission. This research remains at an early stage, and 
the Federal Reserve is working to foster and develop it. These 
efforts are active and ongoing and will help us assess the ways 
climate-related risks may affect the economy, financial 
stability, and the safety and soundness of financial 
institutions.

Q.11. In the third quarter of 2019, oil and gas companies were 
responsible for 91 percent of defaulted U.S. corporate debt. 
\21\ Thirty-seven oil companies received over $1.9 billion in 
tax benefits by using a provision in the Coronavirus Aid, 
Relief, and Economic Security (CARES) Act. For example, 
Marathon received a $411 million benefit, and Occidental 
expects to receive $195 million because of a carryback 
provision. \22\
---------------------------------------------------------------------------
     \21\ New York Times, ``Coronavirus May Kill Our Fracking Fever 
Dream'', opinion, Bethany McLean, April 10, 2020, https://
www.nytimes.com/2020/04/10/opinion/sunday/coronavirus-texas-fracking-
layoffs.html.
     \22\ Bloomberg, `` `Stealth Bailout' Shovels Millions of Dollars 
to Oil Companies'', Jennifer Dlouhy, May 15, 2020, https://
www.bloomberg.com/news/articles/2020-05-15/-stealth-bailout-shovels-
millions-of-dollars-to-oil-companies?sref=L459Uwzi.
---------------------------------------------------------------------------
    How will the Federal Reserve ensure the long-term stability 
of the U.S. energy and financial systems?

A.11. In the wake of COVID-19, we are monitoring corporate 
insolvencies carefully from both a supervisory and financial 
stability perspective. As part of that monitoring, we are 
paying careful attention to default risk in different sectors 
and considering what the repercussions of that risk are for 
financial stability more broadly. Additional information on the 
Federal Reserve's approach to monitoring financial system 
vulnerabilities, including those in the nonfinancial corporate 
sector, can be found in our latest Financial Stability Report. 
\23\ In terms of the U.S. energy sector, Federal law assigns 
regulatory responsibility to other agencies.
---------------------------------------------------------------------------
     \1\ 1 www.federalreserve.gov/publications/2020-may-financial-
stability-report-purpose.htm
---------------------------------------------------------------------------

APPENDIX A








                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ
                     FROM JEROME H. POWELL

Q.1. According to Census data, about half of small businesses 
will run out of cash within a month. States are beginning to 
reopen their economies, but consumer behavior is not going to 
return to normal within a month.
    How many small businesses does the Fed estimate will have 
to close permanently within the next month?
    What economic indicators will the Fed monitor in the next 
couple of weeks to gauge the economy's recovery?

A.1. COVID-19 poses a critical risk of insolvency to small and 
medium-sized businesses. These firms are the heart of our 
economy and widespread insolvencies could cause long-lasting 
economic harm. In order to bolster the effectiveness of the 
Paycheck Protection Program (PPP), the Federal Reserve launched 
the Paycheck Protection Program Liquidity Facility, which 
supplies liquidity to lenders backed by their PPP loans to 
small businesses. In addition, the Federal Reserve's Main 
Street Lending Program (Main Street) facilities are now 
available to provide credit to small and medium-sized firms 
that were in sound financial condition prior to COVID-19.
    Going forward, the financial health of small businesses is 
highly uncertain and will likely remain challenging. The number 
of insolvencies will depend upon multiple factors, including 
the pace of the broader economic recovery. The Federal Reserve 
will be carefully monitoring this issue through the use of 
information such as small business loan performance data and 
the surveys produced by organizations such as the National 
Federation of Independent Business.

Q.2. You have warned that there could be serious, long-term 
economic harm from avoidable insolvencies-both at the household 
and business level.
    In order to avoid unnecessary insolvencies, how quickly 
should Congress act? If we wait until we see bankruptcies 
increase, isn't that too late to use fiscal policy to prevent 
them?

A.2. As stated in my previous response, the current economic 
downturn poses the threat of insolvency for many businesses and 
households; such insolvencies could do significant longer-run 
damage to the economy. Maintaining the flow of credit is 
therefore essential for mitigating damage to the economy and 
laying the groundwork for the recovery. To directly support the 
flow of credit to households, to businesses of all sizes, and 
to State and local governments, the Federal Reserve has 
established several lending facilities. These facilities 
benefit the economy by providing financing where it is not 
otherwise available, helping employers to retain their workers 
and households to meet their obligations. By backstopping 
financial markets, these facilities aim to increase the 
willingness of private-sector lenders to issue credit, thereby 
easing financial strain for families and firms. Furthermore, 
the Coronavirus Aid, Relief, and Economic Security Act (CARES 
Act) and other legislation provides additional, direct support 
to households and businesses, which should help reduce the 
prevalence of firm and household financial strain. Going 
forward, though, household and business insolvency remains a 
significant concern. That said, the size, composition, and 
timing of any additional fiscal support for households and 
firms is ultimately a decision for Congress and the 
Administration.

Q.3. Data from before the COVID pandemic show that household 
debt increased to a new high of $14 trillion in the first 
quarter of 2020, which is $1.6 trillion higher than the 
previous peak in 2008. Many Americans will take on more debt to 
get through the pandemic, and many will fall behind in paying 
their bills.
    Do you think policies that would help reduce Americans' 
debt burden would help speed our economic recovery?

A.3. Total household debt reached a record high of $14 trillion 
in nominal terms in the first quarter of 2020. Real debt, 
however, remained about $1.1 trillion below its previous peak 
in 2008. In addition, real income grew over this period and 
interest rates on household debt are much lower than in 2008. 
As a result, the aggregate household debt service ratio-the 
ratio of total required household debt payments to total 
disposable income-remained at a subdued level.
    The rapid rise in unemployment and the curtailment of 
incomes for many people brought by COVID-19 has limited their 
ability to keep up with their debt obligations. To help 
borrowers weather this shock and manage their debt obligations, 
several programs-such as mortgage and Federal student loan 
forbearance programs-were implemented.
    Government policies that help reduce households' debt 
burdens would likely have positive economic effects, including 
near-term growth and increased spending by those households. In 
such a scenario, aggregate demand could go up in the near term 
as borrowers see their debt payments reduced, and some 
borrowers' credit scores could be boosted. This improvement of 
consumers' balance sheets and creditworthiness could expand 
their credit access, leading to more borrowing and increased 
aggregate demand.
    The extent to which such policies would promote overall 
economic growth would depend on many competing factors that 
lawmakers and the Administration will need to carefully 
consider, including the costs of such policies in a time of low 
interest rates against potential increases in employment and 
economic growth.

Q.4. Do you think the damage to people's credit scores from 
late payments as a result of COVID will weigh on Americans' 
financial health or the economy?

A.4. Provisions under the Coronavirus Aid, Relief, and Economic 
Security Act (CARES Act) relating to credit reporting allow 
consumers affected by the pandemic to obtain relief while 
minimizing the impact on their credit scores. The law requires 
creditors to report as ``current'' any credit obligations on 
which they have provided an accommodation to a COVID-19-
affected borrower who was current prior to the accommodation. 
Indeed, partly due to these measures and lender-provided loan 
forbearance, so far we have not seen a widespread increase in 
delinquencies for household credit, nor a material 
deterioration of credit scores. Maintaining household credit 
performance and stable credit scores is important for ensuring 
a smooth flow of credit to the household sector, which in turn 
will play an important role in helping to facilitate a robust 
economic recovery.
    To support consumers in managing their finances during 
COVID-19, the Federal Reserve Board has issued numerous 
statements and rules to encourage banks to work with their 
customers, support implementation of provisions of the CARES 
Act under our supervision, increase banks' flexibility in 
accommodating consumers' access to credit, and remind banks of 
their obligation to comply with consumer laws and regulations, 
including fair lending. The various actions are listed on the 
COVID-19 page of our public website. \1\ As an overview, 
several of the regulatory and supervisory statements to support 
financial institutions and consumers in this crisis include:
---------------------------------------------------------------------------
     \1\ https://www.federalreserve.gov/COVID-19.htm

    Forbearance and credit workouts: We have issued 
        guidance encouraging banks and mortgage servicers to 
        work with customers and borrowers to provide 
        forbearance. \2\
---------------------------------------------------------------------------
     \2\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20200403a.htm

    CARES Act examination procedures: We have issued 
        public examination procedures to inform the industry of 
        how we intend to supervise State member banks for 
        compliance with the credit reporting and mortgage 
        forbearance provisions of the CARES Act. \3\
---------------------------------------------------------------------------
     \3\ https://www.federalreserve.gov/supervisionreg/caletters/
caltr2011.htm

    Small dollar loans: We have issued principles 
        describing how banks can extend responsible small 
        dollar loans to help borrowers cover temporary cash-
        flow imbalances, unexpected expenses, or income 
        shortfalls. \4\
---------------------------------------------------------------------------
     \4\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20200520a.htm

    Appraisals: We have temporarily deferred the 
        requirement for appraisals to facilitate mortgage 
        credit. \5\
---------------------------------------------------------------------------
     \5\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20200414a.htm

    Access to savings: We have suspended limits on the 
        number of withdrawals from savings accounts to provide 
        consumers greater access to their funds. \6\
---------------------------------------------------------------------------
     \6\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20200424a.htm

    Community Reinvestment Act (CRA) consideration for 
        activities: We have issued a statement indicating that 
        CRA credit would be provided for activities that serve 
        the needs of lower-income consumers and communities, 
        \7\ with interagency guidance issued to clarify 
        activities that will be considered as responsive under 
        CRA. \8\
---------------------------------------------------------------------------
     \7\ https://www.federalreserve.gov/supervisionreg/caletters/
caltr2004.htm
     \8\ https://www.federalreserve.gov/supervisionreg/caletters/
caltr2010.htm

    In addition, consistent with its supervisory authority, the 
Federal Reserve will examine banks under its jurisdiction for 
compliance with the CARES Act provisions that are intended to 
mitigate any negative impact on credit scores due to loan 
accommodations.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR VAN HOLLEN FROM JEROME H. POWELL

Q.1. On May 4, the Federal Reserve Bank of New York announced 
that it plans to use the Term Asset-Backed Loan Facility (TALF) 
to purchase Exchange Traded Funds (ETFs) that may own bonds 
rated below investment grade. How did the Federal Reserve reach 
this decision, and how does it measure the trade-offs of 
purchasing such ETFs?

A.1.I understand from further discussions with your staff that 
your question is referring to purchases made by the Secondary 
Market Corporate Credit Facility (SMCCF). Market functioning in 
the corporate credit market has been impaired based on metrics 
such as prices, bid ask spreads, trading volumes, and price 
volatility as well as limited primary market issuance from high 
yield issuers. The Federal Reserve decided that by purchasing 
Exchange Traded Funds (ETFs) that have exposure to high-yield 
issuers, the SMCCF would be able to provide support to this 
segment of the corporate bond market and limit discontinuities 
between the different segments of the market. Such 
discontinuities can lead to extreme outcomes where companies 
downgraded a single notch-from low investment-grade to the 
upper end of high-yield-find themselves facing sharply higher 
funding costs and thus are under increased pressure to cut 
costs, including by reducing their workforces.
    The increased risk associated with acquiring securities 
issued by high-yield companies is managed by investing through 
instruments that allow for the creation of a diversified 
portfolio and by the increased amount of the U.S. Department of 
the Treasury's (Treasury) equity allocated to support these 
purchases. The Federal Reserve and the Treasury also limit the 
amount of risk to the SMCCF from purchases of high-yield ETFs 
by ensuring that the large majority of ETF purchases target the 
investment grade corporate bond market.

Q.2. What specific authority is the Federal Reserve for its 
Secondary Market Facility? Is the Federal Reserve using its 
13(3) authorities, if so please explain? Has the Federal 
Reserve ever used this authority to buy junk debt? Please 
explain the legal authority the Federal Reserve is relying on 
to justify its use of the Secondary Market Facility to purchase 
junk bond debt.
    For assets not guaranteed as to interest and principal by 
the U.S. government, what is the qualifying collateral, as 
required by Section 13(3),that secures these assets in an 
amount sufficient to protect taxpayers from losses?

A.2. The Federal Reserve, with the approval of the Secretary of 
the Treasury (Secretary), established the SMCCF pursuant to 
authority under section 13(3) of the Federal Reserve Act. In 
unusual and exigent circumstances, the Federal Reserve Board 
(Board), by the affirmative vote of not less than five members, 
may authorize any Federal Reserve Bank, subject to such 
conditions and during such periods as the Board may determine, 
to extend credit to any participant in a program or facility 
with broad-based eligibility. In particular, section 13(3) 
allows the SMCCF to purchase certain types of debt instruments. 
\1\ Section 4003 of the Coronavirus Aid, Relief, and Economic 
Security Act (CARES Act) also contemplates that the Federal 
Reserve may establish programs or facilities that purchase 
obligations or other interests in secondary markets to provide 
liquidity to the financial system. \2\ The Federal Reserve has 
not previously used this authority to purchase high yield 
corporate debt instruments.
---------------------------------------------------------------------------
     \1\ The Federal Reserve Act allows the lending Reserve Bank ``to 
discount for any participant in any program or facility with broad-
based eligibility, notes, drafts, and bills of exchange when such 
notes, drafts, and bills of exchange are indorsed or otherwise secured 
to the satisfaction of the Federal Reserve bank.'' 12 U.S.C. 343(3).
     \2\ See, e.g., 12 U.S.C. 4003(b)(4)(B).
---------------------------------------------------------------------------
    In the case of the SMCCF, the Federal Reserve Bank of New 
York (FRBNY) has recourse to all of the assets owned by the 
special purpose vehicle (SPV), including any earnings and fees 
accumulated in the course of the operation of the SPV. 
Moreover, the equity provided by the Treasury in connection 
with the SMCCF further protects the FRBNY from loss. Market 
participants use credit ratings to assess the likelihood that a 
company's debt will be repaid. Likewise, the SMCCF uses credit 
ratings to identify which debt instruments it may purchase and 
how much Treasury equity will be allocated to protect against 
losses from those instruments. The historical default rates of 
companies rated below investment grade are higher than those of 
companies rated above investment grade, but the SMCCF adjusts 
for heightened credit risk by allocating more Treasury equity 
to support purchases of companies rated below investment grade. 
In particular, the SMCCF leverages the Treasury equity at 10 to 
1 when acquiring corporate bonds of issuers that are investment 
grade, but only at 7 to 1 when acquiring corporate bonds of 
issuers that were previously rated investment grade but are now 
rated one rating grade below investment grade. \3\
---------------------------------------------------------------------------
     \3\ The SMCCF also purchases exchange-traded fund (ETF) shares, 
and leverages the Treasury equity at between 10 to 1 and 3 to 1, 
depending on the risk profile of the ETF.
---------------------------------------------------------------------------
    The loans made by the Federal Reserve to support purchases 
made in the corporate credit facilities are secured by the 
equity provided to the facilities by the Treasury and by all of 
the assets acquired by the facilities.

Q.3. Why has the Federal Reserve decided to pursue this avenue 
to buy junk ETFs?

A.3. Please see the response to Question 1.

Q.4. The Treasury Department has agreed to make a $75 billion 
equity investment in the corporate facilities. If there are 
losses on these assets, who will bear the costs?

A.4. The Secretary, using funds appropriated in the CARES Act, 
has agreed to make a $75 billion equity investment in the 
corporate credit facilities. The Treasury's equity investment 
is designed to protect the Federal Reserve from losses on the 
facilities' purchases by providing first-loss credit 
protection. The facilities leverage this equity prudently. For 
example, the Primary Market Corporate Credit Facility (PMCCF) 
requires $1 of Treasury equity for each $10 spent to purchase a 
corporate bond or syndicated loan of an investment-grade 
issuer. The PMCCF requires $1 of Treasury equity for each $7 
spent to purchase a corporate bond or syndicated loan of an 
issuer that was previously rated investment-grade but has 
fallen to one rating grade below investment grade since the 
facility was established. The Treasury's equity requirements 
under the SMCCF are set up similarly to the PMCCF, as discussed 
in the answer to Question 2. In all cases, the corporate credit 
facilities have calibrated the Treasury leverage based on the 
nature of the asset being purchased, which incorporates risk 
sensitivity and protects against taxpayer loss.

Q.5. What assurance is there that the proceeds received by 
investors in return for these secondary market purchases will 
be used to support the same companies or any U.S. company for 
that matter?

A.5. The corporate bond market experienced significant 
dislocations with the onset of COVID-19. By facilitating market 
functioning, the SMCCF is intended to reduce the risk that 
secondary market prices for corporate bonds become subject to 
fire sales or price dislocations. These price dislocations are 
important because they affect the primary markets through which 
American companies access capital. Potential buyers may 
purchase bonds sold at distressed prices in the secondary 
market rather than buying newly issued bonds directly from 
companies, reducing the availability of new credit to fund 
companies. In addition, there is a direct relationship between 
the secondary market and the primary market, as most new 
corporate bond prices are set based on secondary market 
spreads. By providing support to the secondary market, the 
SMCCF reduces the cost of new credit and increases the 
availability of new credit to borrowers who might otherwise not 
be able to access the market at reasonable rates.
    The SMCCF only transacts with eligible sellers that are 
created or organized in the United States or under the laws of 
the United States. Likewise, the SMCCF has purchased U.S.-
listed ETFs whose investment objective is to provide broad 
exposure to the market for U.S. corporate bonds and, through 
its Broad Market Index purchase program, bonds of issuers that 
are created or organized in the United States or under the laws 
of the United States.

Q.6. The Federal Reserve has hired the firm BlackRock to serve 
as an investment manager for this facility. How is the Federal 
Reserve ensuring BlackRock is acting in the best interest of 
the Federal Reserve and the public?

A.6. On May 11, Corporate Credit Facilities LLC (CCF), an SPV 
created to facilitate the operations of SMCCF, entered into an 
Investment Management Agreement (IMA) with BlackRock Financial 
Management, Inc. (BlackRock) in connection with the SMCCF. The 
FRBNY is the sole managing member of the CCF.
    Pursuant to the IMA, BlackRock acts as a fiduciary to the 
CCF in performing investment management services. In order to 
best advance the CCF's objectives as a fiduciary, BlackRock is 
required to follow FRBNY's specific and detailed investment 
guidelines and to buy and sell corporate bonds, corporate 
loans, and corporate bond ETFs on a best execution basis. 
BlackRock is required to communicate with the CCF on a daily 
basis regarding its planned purchase activity for the day and 
respond to requests for updates from the CCF on market 
functioning and asset purchases.
    The IMA imposes stringent requirements on BlackRock to 
protect confidential information and to mitigate conflicts of 
interest. Confidential information gained by BlackRock or its 
affiliates or their respective directors, officers, or 
employees in the course of this engagement may not be leveraged 
for matters unrelated to the CCF. BlackRock's compliance with 
the rigorous information barrier and conflict of interest 
mitigation provisions the Federal Reserve has imposed under the 
IMA is subject to audit and review by FRBNY, the Board, and 
other governmental authorities with oversight responsibilities 
under applicable law.
    These are select examples of provisions relating to the 
Federal Reserve's efforts to ensure that Blackrock is acting in 
the best interest of the public. The IMA, including the 
investment guidelines, is available in full on the FRBNY 
website. \4\
---------------------------------------------------------------------------
     \4\ See www.newyorkfed.org/medialibrary/media/markets/SMCCF-
Investment-Management-Agreement.pdf.
---------------------------------------------------------------------------
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
           SENATOR CORTEZ MASTO FROM JEROME H. POWELL

Q.1. We know that people over 70, African Americans, Native 
Americans, and Latinos are disproportionately more likely to be 
facing health crises and death due to COVID-19.
    What does the research show about the economic hardship for 
African Americans, Native Americans, and Latinos in terms of 
loss of income and employment as well as financial hardship due 
to the COVID-19 pandemic?
    We know that young adults, African American and Latino 
income, wealth and homeownership rates continued to lag behind 
whites following the financial crisis of 2008, has the Federal 
Reserve undertaken any analysis regarding economic hardship for 
African Americans, Latinos and young adults following this 
pandemic? If so, what interventions would reduce financial 
hardship for these households?
    Are minorities overrepresented in the 40 percent of workers 
with household incomes under $40,000 a year who are now 
unemployed? If so, at what percentage?

A.1. The deterioration in labor market conditions induced by 
the COVID-19 shock has been sudden, severe, and widespread. 
Still, workers in some industries, occupations, demographic 
groups, and locations have experienced more-significant 
employment declines than others. Although disparities in labor 
market outcomes often arise during recessions, factors unique 
to this episode have also contributed to the recent divergence. 
In particular, with respect to race and ethnicity, some 
minority groups have experienced a disproportionate share of 
the job losses induced by COVID-19. According to the Census 
Bureau's Current Population Survey, the employment-to-
population ratio for African Americans fell by 8.6 percentage 
points from February to June, while that for Hispanics fell 9.1 
percentage points. Both declines were significantly larger than 
the 6.5 percentage point decline for the overall population. 
\1\
---------------------------------------------------------------------------
     \1\ Sample-size limitations make it difficult to infer with 
precision the magnitude of employment declines for Native Americans, 
and the Bureau of Labor Statistics reporting of employment statistics 
for that group is also more limited.
---------------------------------------------------------------------------
    Furthermore, these racial and ethnic minorities tend to 
have lower incomes and smaller amounts of financial assets than 
the overall population, and are therefore less able to 
financially weather an extended period of unemployment and the 
large associated losses in labor earnings. \2\
---------------------------------------------------------------------------
     \2\ Akee, et al. (2019) link the universe of U.S. income tax 
filers for 2000-2014 to individual-level information on race and 
ethnicity from multiple censuses and American Community Survey data, 
and document that African Americans, Hispanics, and Native Americans 
have persistently lower incomes than whites. (See Randall Akee, Maggie 
R. Jones, and Sonya R. Porter, 2019, ``Race Matters: Income Shares, 
Income Inequality, and Income Mobility for All U.S. Races,'' 
Demography, 56, 999-1021, https://doi.org/10.1007/s13524-019-00773-7.) 
Dettling, et al. (2017) use data from the Survey of Consumer Finances 
to show that in 2016 (the most-recent survey year) African Americans 
and Hispanic families had considerably less wealth than white families, 
while ``other'' families (a diverse group including those identifying 
as Asian, American Indian, Alaska Native, Native Hawaiian, Pacific 
Islander, other race, and all respondents reporting more than one 
racial identification) had lower net worth than white families but 
higher net worth than African Americans and Hispanic families. (See 
Lisa J. Dettling, Joanne W. Hsu, Lindsay Jacobs, Kevin B. Moore, and 
Jeffrey P. Thompson, 2017. ``Recent Trends in Wealth-Holding by Race 
and Ethnicity: Evidence from the Survey of Consumer Finances,'' FEDS 
Notes. Washington: Board of Governors of the Federal Reserve System, 
September 27, 2017, https://doi.org/10.17016/2380-7172.2083.)
---------------------------------------------------------------------------
    Consistent with these results, responses to the Federal 
Reserve Board's (Board) latest Survey of Household Economics 
and Decisionmaking (SHED) show that in late 2019 (before the 
onset of COVID-19), a large share of adults were either unable 
to pay their monthly bills or were one modest financial setback 
away from failing to pay monthly bills in full-and that this 
share was larger for African American and Hispanic families. 
\3\
---------------------------------------------------------------------------
     \3\ The SHED is an annual survey conducted by the Federal Reserve 
Board that measures the economic well-being of U.S. households and 
identifies potential risks to their finances. The 2019 SHED (which was 
released in May 2020) showed that at the time of the survey (October 
2019), 16 percent of adults were not able to pay all of their current 
month's bills in full, and an additional 12 percent of adults said they 
would be unable to pay all of their current month's bills if they had 
an unexpected $400 expense that they had to pay. Both of these shares 
were significantly larger for African Americans and Hispanic families 
than for white families, at all levels of education. (See Board of 
Governors of the Federal Reserve, ``Report on the Economic Well-Being 
of U.S. Households in 2019,'' available at https://
www.federalreserve.gov/consumerscommunities/shed.htm.)
---------------------------------------------------------------------------
    Regarding the second question, the June 2020 Monetary 
Policy Report to Congress noted that a supplement to the SHED 
conducted in April 2020 (after the onset of COVID-19) found 
that among households with an annual income of $40,000 or less, 
nearly 40 percent of individuals who were employed in February 
experienced job loss in March or early April, compared with 20 
percent of the overall population. Unfortunately, the SHED data 
cannot be used to meaningfully break down the population with 
annual income under $40,000 by race and ethnicity due to 
sample-size limitations. However, other research has shown that 
African Americans, Hispanics, and Native Americans tend to be 
overrepresented in the lower parts of the income distribution 
and underrepresented at the top. \4\
---------------------------------------------------------------------------
     \4\ See Akee, et al. (2019), cited above.

Q.2. I led the Nevada Delegation in writing a letter requesting 
the Treasury Department and the Federal Reserve to prioritize 
loans to businesses uniquely impacted by COVID-19. In Nevada, 
our economy relies on our hospitality, gaming, and tourism 
employers, and we want to ensure industries bearing the brunt 
of the crisis be aided in order to stabilize the marketplace 
and preserve American jobs. At the encouragement of the Nevada 
delegation and other congressional partners, the SBA reversed 
its previously issued guidance to allow for businesses with 
gaming revenue to apply for PPP.
    Can you commit that otherwise eligible gaming business, 
continue to be eligible for the Main Street lending program, 
like the SBA PPP program now allows?

A.2. Yes. On April 24, the Small Business Administration (SBA) 
issued an interim final rule modifying, for purposes of the 
SBA's Paycheck Protection Program (PPP), its regulation deeming 
legal gaming businesses to be ``Ineligible Businesses'' for 
normal course SBA lending. Under the revised rule, ``[a] 
business that is otherwise eligible for a PPP Loan is not 
rendered ineligible because of its receipt of legal gaming 
revenues.'' \5\
---------------------------------------------------------------------------
     \5\ See 85 FR 23450, 23451 (published April 28, 2020).
---------------------------------------------------------------------------
    The Main Street Lending Program (Main Street) incorporates 
the SBA's definition of Ineligible Businesses, as modified by 
the SBA for purposes of the PPP on or before April 24. \6\ As 
such, a business that is otherwise an eligible borrower for 
purposes of Main Street is not rendered ineligible solely due 
to its receipt of legal gaming revenues. Main Street Frequently 
Asked Question (FAQ) E.1 provides that the Main Street 
``Ineligible Business'' definition incorporates the SBA's 
interim final rule permitting legal gaming businesses to borrow 
by citing and linking to the rulemaking.
---------------------------------------------------------------------------
     \6\ See the Main Street FAQs at www.bostonfed.org/mslp-faqs.
---------------------------------------------------------------------------
    Please note that, like any potential borrower in any 
industry, a gaming business must satisfy the other Main Street 
eligibility criteria and an eligible lender's underwriting 
criteria in order to receive a Main Street loan.

Q.3. Vice Chair Quarles spoke before this Committee last week. 
We urged him to move quickly to set up the Main Street Lending 
Program. We need to make credit available to businesses who 
have liquidity problems due to the pandemic.
    What are the employee retention provisions in the Main 
Street Lending Program?
    Will the Fed require applicants to the Main Street Lending 
Program to disclose the intended use of these funds and 
disclose those to the public?
    Will the Fed consider requiring the same or similar 
employment protection policies that is has in its other 
programs like the Primary Market Corporate Credit Facility?

A.3. Main Street was established under Section 13(3) of the 
Federal Reserve Act (FRA), with approval of the Treasury 
Secretary and an equity investment using funds appropriated by 
the Coronavirus Aid, Relief, and Economic Security Act (CARES 
Act). Main Street is designed to provide support for lending to 
small and medium-sized businesses in sound financial condition 
before COVID-19 in order to assist such businesses in 
maintaining operational capacity and payroll.
    The CARES Act was the product of careful bipartisan 
negotiations in Congress, and the legislation does not include 
a requirement that businesses participating in lending programs 
established by the Federal Reserve maintain payrolls. However, 
as indicated in the Main Street term sheets, eligible borrowers 
should make commercially reasonable efforts to retain employees 
during the term of the loan. ``Commercially reasonable 
efforts'' is a standard used in commercial contracts and is 
familiar to businesses. This means that businesses that 
participate in the program are expected to make good-faith 
efforts to maintain payroll and retain employees in light of 
their capacities, the economic environment, their available 
resources, and their business need for labor.
    Borrowers' commercially reasonable efforts to maintain 
payrolls may take different forms across the broad range of 
businesses eligible for Main Street. Because of the facts and 
circumstances that may inform a borrower's judgment in respect 
of this expectation, the Federal Reserve and the U.S. 
Department of the Treasury (Treasury Department) will not 
assess the commercial decisions of individual borrowers. The 
Federal Reserve and Treasury Department will monitor Main 
Street's impact on small and medium-sized businesses and the 
resulting effects on the economic recovery and employment 
broadly rather than on a borrower-by-borrower basis. The 
Federal Reserve will continue to consider adjustments to Main 
Street's terms and conditions, as appropriate.
    Recognizing that the manner for best supporting their 
operations and payroll will likely vary considerably across 
borrowers, Main Street borrowers are not required to disclose 
the intended use of funds. They do, however, face restrictions 
on their use. Main Street borrowers are generally restricted 
from repaying existing debt ahead of schedule until the Main 
Street loans are repaid. Main Street borrowers are also subject 
to the CARES Act restrictions on compensation, stock 
repurchases, and capital distribution that apply to direct loan 
programs. Further, Main Street borrowers may not use the 
proceeds of a Main Street loan for the benefit of foreign 
parents, affiliates, or subsidiaries.
    The Federal Reserve is committed to transparency and will 
disclose information associated with the Main Street 
facilities, including the names of lenders and borrowers, 
amounts borrowed and interest rates charged, and overall costs, 
revenues and other fees, on a monthly basis.

Q.4. Congress expects the Federal Reserve to release borrower 
names and other information about participants in the 
facilities it set up in response to the CARES Act. I appreciate 
the steps that the Federal Reserve has already taken to 
increase transparency, such as disclosing borrowers, amount 
borrowed and what rate of interest, and the overall costs, 
revenues, and fees from various facilities on a monthly basis.
    How will you guard against any favoritism or unfairness in 
access or terms?

A.4. The Board is committed to guarding against favoritism or 
unfairness in access or terms for its facilities. The 
facilities are designed to provide broad-based eligibility with 
transparent and neutrally objective eligibility criteria for 
participation and creditworthiness. In all of our lending 
programs, we expect lenders to consider loan applications from 
borrowers and assess each potential borrower's financial 
condition at the time of the loan application, regardless of 
whether that potential borrower is an existing customer or a 
new customer. We continue to monitor all of our programs to 
ensure that their terms and conditions are being met.

Q.5. Does the Fed plan to release disclosures for other 
programs not directly authorized under the CARES Act, such as 
purchasing asset-backed securities?

A.5. The Federal Reserve is deeply committed to ensuring 
transparency and accountability in the establishment and 
operation of facilities established pursuant to section 
4003(b)(4) of the CARES Act and section 13(3) of the FRA. 
Section 13(3) of the FRA allows the Board, in unusual and 
exigent circumstances, to authorize any Federal Reserve Bank to 
extend credit to any participant in a program or facility with 
broad-based eligibility. The Board has established 13 
facilities pursuant to this authority; nine of the facilities 
have received equity investments from the Treasury Department 
with funds appropriated under the CARES Act: the Term Asset-
Backed Securities Loan Facility (TALF), Secondary Market 
Corporate Credit Facility (SMCCF), Primary Market Corporate 
Credit Facility (PMCCF), Main Street New Loan Facility (MSNLF), 
Main Street Expanded Loan Facility (MSELF), Main Street 
Priority Loan Facility (MSPLF), Nonprofit Organization Expanded 
Loan Facility (NOELF), Nonprofit Organization New Loan Facility 
(NONLF) and Municipal Liquidity Facility (MLF).
    Both the FRA and the CARES Act require the Federal Reserve 
to provide an initial report to the Committee on Banking, 
Housing, and Urban Affairs of the Senate and the Committee on 
Financial Services of the House of Representatives (the 
Committees) within seven days after the Board authorizes any 
loan or other financial assistance pursuant to those sections. 
The seven-day reports generally do not include transaction 
information as facilities are usually not operational by the 
time the report is filed. The Board provided to the Committees 
its initial reports for each facility within seven days after 
authorization, and these reports also were posted on the 
Board's public website.
    After the initial report, the Federal Reserve is required 
to provide updates to the Committees at least every 30 days 
regarding the value of collateral; the amount of interest, 
fees, and other revenue or items of value received in exchange 
for the assistance; and the expected or final cost to the 
taxpayers of such assistance. To enhance transparency, the 30-
day reports will contain enhanced amounts of information on a 
monthly basis for the liquidity and lending facilities using 
CARES Act funding, as well as for the Paycheck Protection 
Program Liquidity Facility, including the names and details of 
participants in each facility; amounts borrowed and interest 
rates charged; and overall costs, revenues, and fees for each 
facility. For the programs that are targeted at financial 
market functioning, the Federal Reserve will provide a full 
accounting of transactions in these facilities but on a delayed 
schedule. Real-time disclosure would risk stigmatizing 
participation in these facilities and undermining the Federal 
Reserve's ability to assure that these systemically important 
markets continue their critical function in times of severe 
market stress. The delay in disclosure will be no longer than 
it needs to be to ensure that participants do not hesitate to 
participate.
    The Federal Reserve has provided, and will continue to 
provide, periodic updates concerning each operational facility 
at least every 30 days.

Q.6. The CARES Act prohibited companies that receive support 
through the Federal Reserve programs that make direct loans 
from paying dividends or buying back their own stock until 12 
months after the loan is repaid. The CARES Act also imposes 
limits on executive compensation for companies that receive 
direct loans.
    What is your oversight plan to ensure that no dividends are 
paid or stocks are purchased and that executive compensation is 
capped as Congress intended?

A.6. Under the Main Street facilities, the Chief Executive 
Officer and Chief Financial Officer (or officers performing 
similar functions) of the eligible borrower must certify that 
the borrower meets each of the borrower certifications and 
covenants. These certifications and covenants include 
compensation, stock repurchase, and capital distribution 
restrictions. If borrowers fail to follow the certification and 
covenants outlined in the term sheets of the Main Street 
facilities, they will be required to the repay the proceeds 
obtained through the facility immediately. Moreover, if the 
Federal Reserve finds evidence of a knowing material 
misrepresentation, we will refer the matter to law enforcement 
authorities.

Q.7. The CARES Act restricts Fed financing to ``businesses that 
are created or organized in the United States or under the laws 
of the United States and that have significant operations in 
and a majority of its employees based in the United States.''
    Will you ensure that any company that receives financing 
from the Federal Reserve is a U.S.-based company?
    Will you prohibit aid to companies that may have undergone 
a tax inversion before, changed its incorporation to the U.S. 
recently, or is a U.S. subsidiary of a foreign company?
    Will the Fed require disclosure of beneficial owners in 
order to prevent shell structures?
    As the Federal Reserve permits investments in Exchange 
Traded Funds (ETFs), how will the Fed ensure that none of the 
investments of ETFs include non-U.S. companies?

A.7. The Federal Reserve is committed to complying with the 
restrictions set forth in the CARES Act, including the 
provision that borrowers participating in Federal Reserve 
facilities in which the Treasury Department has invested funds 
appropriated under the CARES Act must be created or organized 
in the United States or under the laws of the United States and 
have significant operations in and a majority of its employees 
based in the United States. U.S. subsidiaries of foreign 
companies are eligible to participate in these facilities as 
long as the subsidiary is created or organized in the United 
States or under the laws of the United States and on a 
consolidated basis has significant operations in and a majority 
of its employees based in the United States. In addition, in 
the PMCCF and Main Street, we also require that subsidiaries of 
foreign companies use facility proceeds to support their U.S. 
businesses and U.S. employees.
    The SMCCF purchases U.S.-listed Exchange Traded Funds (ETF) 
whose investment objective is to provide broad exposure to the 
market for U.S. corporate bonds. The preponderance of ETF 
holdings are of ETFs whose primary investment objective is 
exposure to U.S. investment-grade corporate bonds, and the 
remainder are in ETFs whose primary investment objective is 
exposure to U.S. high-yield corporate bonds. In some limited 
cases, the holdings of ETFs may include underlying bonds that 
would otherwise be ineligible for purchase by the SMCCF.

Q.8. As you are aware, the Fed has hired the BlackRock 
investment firm to buy high-yield exchange-traded funds, newly 
issued corporate bonds, and existing investment grade corporate 
bonds.
    Will the Fed prohibit BlackRock from making trades based on 
what they learned while providing the financing until after the 
Fed announced all of its purchases publicly?
    Will the Fed prohibit BlackRock executives, who are allowed 
to view both confidential information and interact with the 
rest of the firm outside the ``ethical wall'' while providing 
financing, from making trades until after the Fed announced all 
of its purchases publicly?
    Will the Fed institute any disclosure or transparency 
requirements to ensure the public is aware of financial firms 
which help administer Federal relief, and what compensation 
they may receive?

A.8. The investment management agreement with BlackRock for the 
corporate credit facilities is public and can be found on the 
Federal Reserve Bank of New York's public website. \7\ The 
agreement provides clarity into the internal controls required 
by BlackRock or any subsequent investment managers and provides 
additional transparency on the Federal Reserve's relationship 
with the investment manager.
---------------------------------------------------------------------------
     \7\ www.newyorkfed.org/medialibrary/media/markets/SMCCF--
Investment--Management--Agreement.pdf.
---------------------------------------------------------------------------
    Confidential information gained by BlackRock or its 
affiliates or their respective directors, officers, or 
employees in the course of this engagement may not be leveraged 
for matters unrelated to the corporate credit facilities. This 
restriction prohibits, without limitation, use of any 
confidential information for the benefit of BlackRock, for the 
benefit of any other BlackRock client, or to inform any 
financial transaction, render any advice or recommendation, or 
attempt to influence any market or transaction for the benefit 
of any individual or entity other than the corporate credit 
facilities. This obligation survives the termination or 
expiration of the investment management agreement.
    BlackRock employees providing investment management, 
trading, and/or advisory services to the corporate credit 
facilities or the Federal Reserve Bank of New York-for the 
duration of when they have access to material nonpublic 
information plus a two-week cooling off period-are prohibited 
from providing investment management, trading, or advisory 
services to anyone other than the corporate credit facilities 
in any of the asset classes held by BlackRock and must also 
refrain from purchasing for him/herself investments in any of 
the asset classes held by BlackRock, unless authorized by the 
Chief Compliance Officer of the Federal Reserve Bank of New 
York. The two-week period is intended to ensure that material 
nonpublic information loses its value in the market. To be 
clear, even after the two-week cooling off period, material 
nonpublic information may not be leveraged for matters 
unrelated to the corporate credit facilities. Additional 
information is available in Exhibit G of the investment 
management agreement, which sets forth the Information Barrier 
and Conflicts of Interest Mitigation procedures.
    Compensation for the investment manager is also detailed 
under Exhibit D of the investment management agreement, ``Fee 
Schedule and Payment Procedures.'' For the other vendors with 
whom the Federal Reserve has contracted to operationalize its 
emergency facilities, information has been made available or 
will be made available about their compensation details. \8\
---------------------------------------------------------------------------
     \8\ For the Commercial Paper Funding Facility agreements, see 
www.newyorkfed.org/markets/commercial-paper-funding-facility. For the 
MLF agreements, see www.newyorkfed.org/markets/municipal-liquidity-
facility. For the TALF agreements, see www.newyorkfed.org/markets/term-
asset-backed-securities-loan-facility.

Q.9. After a major price-fixing scandal, international banking 
regulators sought to phase out LIBOR by the end of 2021. The 
plan was to replace it with SOFR--the Secured Overnight 
Financing Rate.
    Why has the Federal Reserve picked LIBOR as the benchmark 
for the Main Street Lending Program?
    As the Fed buys debt from potentially hundreds of 
companies, why will the Fed keep issuing loans tied to a 
controversial reference rate?
    Since the Fed's Main Street Lending facility provides loans 
with a four-year maturity, is that going to make the transition 
from LIBOR to SOFR in 2021 more difficult?

A.9. Under the initial Main Street term sheets released for 
comment on April 8, the Federal Reserve and Treasury Department 
proposed a SOFR-based interest rate. The agencies received 
significant feedback during the comment period from potential 
participants that quickly implementing new systems to issue 
loans based on SOFR would require diverting resources from 
challenges related to COVID-19. Although financial institutions 
are transitioning to more robust reference rates, LIBOR remains 
the most common base rate used in business lending, even though 
firms cannot rely on LIBOR being published after the end of 
2021. Consistent with the recommendations of the Alternative 
Reference Rates Committee, Main Street lenders and borrowers 
are advised to include fallback contract language to be used 
should LIBOR become unavailable during the term of the loan.

Q.10. The Federal Reserve has used its Section 13(3) authority 
to lend to businesses and local governments and other powers to 
allocate $2.3 trillion of credit through nine programs, backed 
by $215 billion of Treasury funds.
    Do you agree with the Congressional Budget Office estimates 
that the Fed's programs will not increase the Federal deficit, 
because loans that default are likely to be offset by other 
loans repaid with interest that result in a net gain for the 
government?
    In addition to loans, the Federal Reserve could take an 
equity stake in companies receiving assistance, would returns 
on those warrants help offset the size of the programs? If so, 
by how much?

A.10. Consistent with section 13(3) of the FRA, and Regulation 
A, the design of our facilities helps to ensure that taxpayers 
are protected from loss. In particular, when designing our 
facilities, we model our lending to prevent losses even in 
severely adverse scenarios. Furthermore, we only make loans to 
borrowers that we believe are solvent, in programs of broad 
eligibility.
    In addition, under Regulation A, interest rates on eligible 
notes under each of our facilities are set at a rate that is a 
premium to the market rate in normal circumstances. Overall, 
the Federal Reserve believes that the facilities as designed 
will protect taxpayers from losses. Although these actions do 
not guarantee there will not be losses on some loans, they do 
help prevent them. Moreover, consistent with section 13(3) of 
the FRA, our emergency facilities provide emergency liquidity 
for strained credit markets. These programs are not spending or 
investment programs. Moreover, the Federal Reserve does not 
receive warrants from companies that access our facilities.
    The Federal Reserve will continue to monitor these 
facilities to ensure they are working as intended, including 
that they adequately protect taxpayers from losses.

Q.11. What are you doing to assess and prepare for the 
possibility that a long-lasting economic downturn could 
potentially threaten the solvency of US banks both large and 
small?

A.11. The banking system is more resilient and better placed to 
sustain financing to the real economy as a result of the 
regulatory reforms enacted, and measures taken by the banking 
industry, in the aftermath of the 2008 global financial crisis. 
These reforms have helped the banking system to serve as a 
source of strength and to support the flow of credit to 
households and businesses during these challenging times. We 
have encouraged banks to make prudent use of their existing 
buffers of capital and liquidity.
    In response to COVID-19, the Board has focused on 
heightened monitoring of banking organizations and targeting 
exam resources to high-risk institutions. We are also actively 
working with the Office of the Comptroller of the Currency, the 
Federal Deposit Insurance Corporation, and State counterparts 
to ensure consistent responses and approaches to supervising 
banking organizations of all sizes during the crisis. For 
example, the agencies have jointly developed guidance and 
statements related to COVID-19, including an Interagency 
Examiner Guidance for Assessing Safety and Soundness 
Considering the Effect of the COVID-19 Pandemic on 
Institutions. The guidance and statements highlight potential 
risks to banking organizations related to COVID-19 to help the 
banking organizations prepare for these risks.
    With respect to the largest banks, the Board recently 
finalized a stress capital buffer framework that uses a 
forward-looking analysis to help ensure that large banking 
organizations have sufficient capital to survive a severe 
recession while still being able to lend to households and 
businesses. As part of our stress testing approach this year, 
the Board conducted sensitivity analyses to assess the 
resiliency of large banking organizations under three 
hypothetical recessions, which could result from COVID-19. In 
light of the results from these analyses, the Board took 
several actions to help ensure large firms remain resilient 
despite the economic uncertainty from COVID-19. In particular, 
for the third quarter of this year, the Board is requiring 
large banks to preserve capital by suspending share 
repurchases, capping dividend payments, and allowing dividends 
according to a formula based on recent income. The Board is 
also requiring banks to update and resubmit their longer-term 
capital plans. The Federal Reserve will closely monitor the 
condition of the large banks and the broader financial system 
in the coming months, including through additional COVID-19-
related analysis and will consider additional actions as 
appropriate.

Q.12. What are you doing to build on the experience with other 
industry-specific initiatives to help bus carriers? Have you 
crafted programs so that these companies can get access to 
capital?

A.12. Consistent with section 13(3) of the FRA, all of our 
emergency lending facilities have broad, neutrally defined 
eligibility requirements and pricing mechanisms and are 
designed to minimize credit allocation while also minimizing 
risks to the taxpayer. Like many other industries affected by 
COVID-19, bus carriers may benefit from Federal Reserve 
programs, such as Main Street, depending on their size and 
other characteristics. The overall objective of Main Street is 
to promote lending to businesses that were in sound financial 
condition prior to COVID-19 and to meet the needs of a broad-
range of eligible businesses across every sector of the 
economy. Like other program eligibility requirements, the Main 
Street eligibility requirements were designed to be broad. 
Specific eligibility requirements and terms under each of Main 
Street's facilities can be found in the facility term sheets. 
\9\ For more information on Main Street, please see 
www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.
---------------------------------------------------------------------------
     \9\ For the MSNLF, see www.federalreserve.gov/newsevents/
pressreleases/files/monetary20200608a1.pdf. For the MSPLF, see 
www.federalreserve.gov/newsevents/pressreleases/files/
monetary20200608a2.pdf. For the MSELF, see www.federalreserve.gov/
newsevents/pressreleases/files/monetary20200608a3.pdf.

Q.13. Prior to this crisis, the travel industry was coming off 
a decade of growth and many travel businesses were in strong 
financial shape. Now, due to the travel restrictions, business 
closures and quarantines in place across the U.S., travel 
businesses have virtually no customers or revenue. The impacts 
have been catastrophic.
    The response by Congress and the Administration has focused 
largely on small businesses, which are absolutely vital to the 
economy. While 83 percent of travel businesses are small 
businesses, more than 50 percent of travel industry workers are 
employed by mid- to large-sized businesses with more than 500 
employees.
    What type of financial assistance are the Treasury and 
Federal Reserve planning establish for our Nation's nonprofits, 
like destination marketing organizations, many of which are 
ineligible for programs like PPP under the CARES Act?

A.13. Nonprofit organizations are a critical part of our 
economy, employing millions of people, providing essential 
services to communities, and supporting innovation and the 
development of a highly skilled workforce. We announced on June 
15 that we would be seeking public feedback on a proposal to 
expand Main Street to provide access to credit for nonprofit 
organizations described in sections 501(c)(3) and 501(c)(19) of 
the Internal Revenue Code that meet minimum eligibility 
criteria. \10\ The Board received comments from a wide range of 
stakeholders, and in response, on July 17 we announced revised 
term sheets that expanded the range of nonprofit organizations 
eligible to obtain Main Street loans. Under the updated terms, 
the Federal Reserve will offer loans to small and medium-sized 
nonprofits that were in sound financial condition before COVID-
19. Nonprofit organizations will need to meet various 
eligibility criteria to qualify, including financial 
eligibility criteria based on operating performance, liquidity, 
and ability to repay debt. For additional information on the 
nonprofit facilities, please see the facility term sheets. \11\
---------------------------------------------------------------------------
     \10\ https://www.federalreserve.gov/newsevents/pressreleases/
monetary20200615b.htm
     \11\ For the Nonprofit Organization Expanded Loan Facility term 
sheet, see https://www.federalreserve.gov/newsevents/pressreleases/
files/monetary20200717a1.pdf. For the Nonprofit Organization New Loan 
Facility term sheet, see https://www.federalreserve.gov/newsevents/
pressreleases/files/monetary20200717a2.pdf.
---------------------------------------------------------------------------
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
                     FROM JEROME H. POWELL

Q.1. Racial Disparity--What steps has the Federal Reserve taken 
to ensure and track that its lending facilities will reach the 
hardest hit communities, particularly communities of color? 
Please be as specific as possible.
    Can the Federal Reserve provide Congress the data on the 
race of the ownership of the entities using the facilities?

A.1. We generally collect information on borrowers related to 
the terms of the loan they are getting from us (such as their 
credit rating) or the eligibility for the loan (such as 
certifications related to the Coronavirus Aid, Relief, and 
Economic Security Act (CARES Act)). We publish detailed 
information on borrowers and loan terms every month. In 
addition, contracts with our facility vendors are public and 
generally require them to make efforts to seek diverse 
subcontractors.
    We are committed to ensuring the Main Street Lending 
Program (Main Street) is widely known throughout the business 
community and among depository institutions, including among 
minority and women-owned businesses and minority depository 
institutions (MDIs). To that end, we have made an intentional 
effort to reach minority and women-owned businesses as well as 
MDIs as part of our Main Street outreach. For example, on June 
24, the Federal Reserve held a webinar targeted at reaching 
minority and women-owned businesses to walk through the program 
and take questions from attendees. In advance of the webinar, 
we reached out to a wide range of diverse businesses 
associations and organizations with strong connections to 
minority communities to help get the word out. In addition, on 
July 1, the Federal Reserve and the National Bankers 
Association, through our Partnership for Progress program, held 
a briefing on the Main Street for MDIs.
    The Paycheck Protection Program Liquidity Facility (PPPLF) 
has a wide reach across the country and a variety of 
communities and we have found that community banks have been 
especially active participants. The Federal Reserve conducted 
outreach, including a series of webinars about the PPPLF, to 
ensure that eligible institutions have the necessary 
information to access the program. Additionally, we partnered 
with community development staff and conducted specific 
outreach with the Opportunity Finance Network, the Community 
Development Bankers' Association, and others to ensure that 
Community Development Financial Institution (CDFI) loan funds 
are able to access the PPPLF. There are currently nearly 80 
participants in the PPPLF that are either MDIs or CDFIs or 
both. We will continue to conduct outreach as needed to support 
the broadest possible access to Paycheck Protection Program 
(PPP) lenders.

Q.2. Are the Treasury Department and Federal Reserve working 
with CDFIs, including nondepository CDFIs, and minority 
depository institutions to help them navigate the PPP and the 
PPP Lending Facility so that they can have more success there? 
If so, please provide specific steps being taken.

A.2. The employee size and revenue eligibility metrics under 
Main Street were adopted to enable the program to support small 
and medium-sized businesses that are unable to receive 
sufficient assistance through other programs, such as the SBA's 
PPP, or that may not have reached the scale needed to issue the 
kinds of capital market instruments that would be purchased 
under the Federal Reserve's Primary Market Corporate Credit 
Facility (PMCCF). Larger companies may wish to consider whether 
the PMCCF, which extends credit to CARES Act-eligible 
businesses without imposing restrictions related to revenues or 
number of employees, meets their needs. Like Main Street, 
borrowers under the PMCCF must meet facility-specific 
eligibility criteria. As of June 29, the PMCCF is operational 
and available for use.

Q.3. Main Street Lending Facility--While Main Street funding is 
vital for small and medium manufacturers and should be 
implemented now, larger manufacturers are also suffering from 
liquidity crises and also need relief. When will the term 
sheets and regulations be written and loans made available for 
larger manufacturers with more than $5 billion in sales or 
15,000 jobs? They were included in the CARES Act and also are 
counting on the Fed and the Treasury.

A.3. The employee size and revenue eligibility metrics under 
Main Street were adopted to enable the program to support small 
and medium-sized businesses that are unable to receive 
sufficient assistance through other programs, such as the SBA's 
PPP, or that may not have reached the scale needed to issue the 
kinds of capital market instruments that would be purchased 
under the Federal Reserve's Primary Market Corporate Credit 
Facility (PMCCF). Larger companies may wish to consider whether 
the PMCCF, which extends credit to CARES Act-eligible 
businesses without imposing restrictions related to revenues or 
number of employees, meets their needs. Like Main Street, 
borrowers under the PMCCF must meet facility-specific 
eligibility criteria. As of June 29, the PMCCF is operational 
and available for use.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SMITH
                     FROM JEROME H. POWELL

Q.1. Accessing loans under the Paycheck Protection Program has 
been a challenge for many business owners, especially for 
business owners of color and native businesses, who are less 
likely to have a lending relationship with a bank that will 
accept their PPP application.
    Is it acceptable for the largest banks in the country to be 
only processing PPP applications for existing customers, for 
most of the time that they were accepting PPP applications?
    Should the largest banks in the country, like JPMorgan 
Chase, Wells Fargo, Bank of America, and Citi, be allowed to 
prioritize PPP loans for some customers over others? Or should 
they be processed on a first come, first served basis?

A.1.The goal of the Small Business Administration's (SBA) 
Paycheck Protection Program (PPP) was to provide funding to 
small businesses to help them keep their workers on their 
payrolls during COVID-19. In response, lenders mobilized to 
operationalize lending though the PPP as quickly as possible. 
These loans are supporting more than 51 million jobs and over 
80 percent of all small business employees, and the SBA reports 
that 98 percent of PPP loans were for $1 million or less. \1\
---------------------------------------------------------------------------
     \1\ U.S. Department of Treasury, Press Release, ``SBA and Treasury 
Announce Release of Paycheck Protection Program Loan Data'', available 
at https://home.freasurv.gov/news/press-releases/sm-052.
---------------------------------------------------------------------------
    Depending on the circumstances, financial institutions 
choosing to work only with existing customers may raise fair 
lending concerns, such as that of redlining. In addition, 
prioritizing certain customers, such as high net worth 
applicants, or applying additional eligibility requirements, 
such as minimum loan amounts, may raise consumer protection 
concerns regarding fair access and fair treatment. These 
protections apply to loans made through the PPP, just as they 
do to other types of small business lending. As in all lending 
activities, State member banks under the supervision of the 
Federal Reserve are expected to have effective consumer 
compliance management systems in place to ensure that all of 
their lending activities adhere to fair lending and other 
applicable consumer protection laws. We recognize that 
financial institutions moved swiftly to assist borrowers 
affected by COVID-19 and that in some instances there may have 
been legitimate reasons for limiting PPP loans to existing 
customers, given, for example, the speed with which PPP loans 
needed to be made and Bank Secrecy Act requirements. When 
exercising supervisory and enforcement responsibilities, the 
Federal Reserve will take into account the unique circumstances 
impacting borrowers and institutions resulting from COVID-19. 
Examiners will also take into account an institution's good-
faith efforts that demonstrate their efforts to serve borrowers 
and comply with consumer protection laws while deploying 
capital that was critical to support their communities.

Q.2. Do you believe banks are meeting the credit needs and 
convenience of their communities when it comes to PPP loans, if 
they're only lending to existing customers? Do you have fair 
lending concerns about the practices of any institutions 
related to PPP?

A.2.With every policy action that the Federal Reserve has 
undertaken, meeting the convenience and needs of consumers and 
communities and helping them weather the financial impacts of 
COVID-19 has been foremost on our minds. Each of the facilities 
were established to support the flow of credit to households, 
businesses, and communities. Several of our lending facilities 
were specifically aimed at providing liquidity to consumers and 
small and midsize businesses, including the Term-Asset Loan 
Facility, the Paycheck Protection Program Lending Facility 
(PPPLF), and Main Street. In addition, the Board has urged 
banks to work with their customers, and issued statements and 
rules to support banks' efforts to exercise flexibility in 
accommodating consumers' access to credit, while reminding 
banks of the importance of complying with consumer laws and 
regulations, including fair lending. \2\
---------------------------------------------------------------------------
     \2\ The various actions in response to COVID-19 can be found at 
https://www.federalreserve.gov/COVID-19.htm.
---------------------------------------------------------------------------
    With respect to whether the PPP is meeting the convenience 
and needs of communities, small business lending undertaken by 
banks under the SBA's PPP is an important part of the Federal 
COVID-19 response to support consumers, households, businesses, 
and communities. The PPP provides loans to small businesses so 
that they can keep their workers on the payroll by extending 
credit to eligible financial institutions that originate PPP 
loans. To bolster the effectiveness of the PPP, the Board 
launched the PPPLF to supply liquidity to participating 
financial institutions through term financing backed by PPP 
loans to small businesses. The PPPLF extends credit to eligible 
financial institutions that originate PPP loans, taking the 
loans as collateral at face value.
    In terms of evaluations under the Community Reinvestment 
Act (CRA) assessment of whether a bank is meeting the 
convenience and needs of its communities, PPP loans that meet 
the Community Reinvestment Act's (CRA) small business loan 
definitions will be considered as retail loans under the 
lending test. In addition, PPP loans greater than $1 million 
will be considered as community development loans if they have 
a primary purpose of community development, for example by 
promoting economic development or helping to revitalize or 
stabilize low- or moderate-income geographies or distressed or 
underserved nonmetropolitan middle-income geographies. \3\
---------------------------------------------------------------------------
     \3\ For more information, see CA 20:10, ``Community Reinvestment 
Act (CRA) Consideration for Activities in Response to the Coronavirus'' 
at https://www.federalreserve.gov/supervisionreg/caletters/
caltr2010.htm.

Q.3. Businesses can't wait a few months for PPP loans--they 
need them now. How will you be enforcing the Community 
Reinvestment Act when it comes to PPP, to make sure banks are 
doing a meaningful job reaching all of the businesses in need 
---------------------------------------------------------------------------
in their communities?

A.3. The Board has worked with the Office of the Comptroller of 
the Currency (OCC) and Federal Deposit Insurance Corporation 
(FDIC) to release interagency frequently asked questions (FAQs) 
that address the CRA treatment of PPP loans, among other 
topics. \4\ This particular FAQ makes clear that the CRA 
treatment of PPP loans will follow existing CRA rules, 
including a focus on smaller loans to small businesses and 
ensuring a primary purpose of community development as defined 
under the CRA. The FAQ notes that PPP loans to businesses that 
meet existing CRA small business standards would count for CRA 
purposes. However, for PPP loans made to larger businesses, 
some fact-specific determinations will be considered, such as 
the location of the business. As indicated in the Federal 
Reserve System's Small Business Credit Survey, there are unmet 
credit needs for the smallest businesses, including many 
minority-owned and womenowned businesses, and we encourage 
banks to work to responsibly meet these credit needs for these 
businesses as well. \5\
---------------------------------------------------------------------------
     \4\ See https://www.federalreserve.gov/supervisionreg/caletters/
caltr2010.htm.
     \5\ See https://www.fedsmallbusiness.org/medialibrary/
FedSmallBusiness/files/2020/2020-sbcs-employer-firmsreport.pdf.
---------------------------------------------------------------------------
    The Board also has taken steps to broaden the eligible 
lenders for the Federal Reserve's PPP Liquidity Facility 
(PPPLF) to include nondepository Community Development 
Financial Institutions (CDFIs) that are eligible PPP lenders. 
\6\ This step will help provide these lenders with additional 
liquidity needed to make PPP loans, resulting in additional 
options for business in lower-income communities and for women- 
and minority-owned firms given CDFIs' focus on these target 
markets.
---------------------------------------------------------------------------
     \6\ See https://www.federalreserve.gov/newsevents/pressreleases/
monetary20200430b.htm.

Q.4. The CARES Act directed Treasury and the Federal Reserve to 
set up a lending program for midsize businesses.
    One provision of the CARES Act says that the Treasury 
Secretary ``shall endeavor'' to establish a lending program for 
midsize businesses and that any borrower applying for a loan 
under the midsize business lending program must certify that 
``the recipient will not outsource or offshore jobs for the 
term of the loan and 2 years after[wards].''
    Yet, when the Fed unveiled the term sheets for the Main 
Street Lending Facility, there doesn't seem to be any mention 
of a certification for not moving jobs offshore.
    Do you think firms getting taxpayer-funded bailout should 
be required to keep their jobs in the United States?
    Why wasn't this a requirement in your agreement with the 
Fed to require firms to agree not to move jobs or production 
overseas?
    What about other Treasury-Fed lending programs, besides the 
midsize business lending program? Don't you think that any firm 
receiving a Federal grant or loan should be required to agree 
that they won't move jobs offshore?
    In what ways did you endeavor to implement the program as 
described in the CARES Act, in keeping with both the spirit and 
letter of the law?
    Why isn't the offshoring provision required in the Main 
Street Lending Program? What steps did you take in an effort to 
implement that provision?
    Besides the offshoring provision, please describe the steps 
you took to comply with both the letter and spirit of Section 
4003(c)(3)(D)(i)(I) through (X) of the CARES Act, including why 
you ultimately chose to implement each requirement or not.

A.4. The Main Street Lending Program (Main Street) is designed 
to facilitate support to small and medium-sized businesses as 
effectively and efficiently as possible, while protecting 
taxpayer funds. Main Street is designed to help enable such 
businesses to maintain their operations during this difficult 
time period.
    In section 4003(c)(3)(D)(i) of the Coronavirus Aid, Relief, 
and Economic Security Act (CARES Act), Congress set out a 
possible design for a facility to provide assistance to 
midsized businesses, which included restrictions on outsourcing 
or offshoring jobs during the term of the loan and for 2 years 
after the loan was repaid. Congress clarified in section 
4003(c)(3)(D)(ii) of the CARES Act, however, that Main Street 
could be designed at the Federal Reserve Board's (Board) 
discretion under its authority in Section 13(3) of the Federal 
Reserve Act without such restrictions. The Board used this 
authority in designing Main Street in a manner that would 
comply with all applicable laws and would best facilitate the 
flow of credit to small- and medium-sized business borrowers.
    While Main Street's terms do not include restrictions on 
offshoring, Main Street borrowers are required to commit that 
they will use the proceeds of the Main Street loan only for the 
benefit of the borrower, its consolidated U.S. subsidiaries, 
and other affiliates of the borrower that are U.S. businesses. 
Borrowers may not use the proceeds of the loan for the benefit 
of their foreign parents, affiliates, or subsidiaries.
    In addition, Main Street requires certifications and 
covenants that are similar to several of the other conditions 
set out in section 4003(c)(3)(D)(i) of the CARES Act, including 
the following restrictions which are imposed by section 13(3) 
of the Federal Reserve Act, other sections of the CARES Act, or 
the Main Street term sheets:

    U.S. Business Requirement: Under section 
        4003(c)(3)(C) of the CARES Act, eligible borrowers must 
        be ``businesses that are created or organized in the 
        United States or under the laws of the United States 
        and that have significant operations in and a majority 
        of its employees based in the United States.'' This 
        requirement is substantially similar to the 
        requirements in sections 4003(c)(3)(D)(i)(IV) and (VI).

    Direct Loans: Eligible borrowers must commit to 
        comply with the restrictions that apply to direct loan 
        programs under section 4003(c)(3)(A)(ii) of the CARES 
        Act, except that an S corporation or other tax pass-
        through entity that is an eligible borrower may make 
        distributions to the extent reasonably required to 
        cover its owners' tax obligations in respect of the 
        entity's earnings. Certain of these requirements are 
        similar to the requirement in section 
        4003(c)(3)(D)(i)(VII) of the CARES Act.

    Solvency: Borrowers must certify that they are 
        solvent and are not in bankruptcy, resolution, or 
        another type of insolvency proceeding at the time of 
        borrowing to effectuate compliance with section 13(3) 
        of the Federal Reserve Act. This requirement is 
        substantially similar to the requirement in section 
        4003(c)(3)(D)(i)(V) of the CARES Act. In addition, 
        under the Main Street term sheets, each borrower must 
        certify that that it has a reasonable basis to believe 
        that, as of the date of origination of the Main Street 
        loan and after giving effect to such loan, the borrower 
        has the ability to meet its financial obligations for 
        at least the next 90 days and does not expect to file 
        for bankruptcy during that time period.

    Availability of Credit: To effectuate compliance 
        with Section 13(3) of the Federal Reserve Act and 
        Regulation A, each borrower must certify that it is 
        unable to secure ``adequate credit accommodations'' 
        because the amount, price, or terms of credit available 
        from other sources are inadequate for the borrower's 
        needs during the current unusual and exigent 
        circumstances. This requirement is similar to section 
        4003(c)(3)(D)(i)(I) of the CARES Act.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                     FROM JEROME H. POWELL

Q.1. In its April 30 guidance, the Federal Reserve determined 
that nonbank financial institutions would not be considered as 
eligible lenders under the Main Street Lending Program. 
However, the Federal Reserve is open to considering options to 
expand the list of eligible lenders in the future. Since April 
30, has the Federal Reserve made any further determinations 
regarding eligible lenders? If so, will that broader list 
include business development companies (BDCs) to ensure that 
funds are able to reach Main Street businesses?

A.1. At this time, nonbank financial institutions that are 
unaffiliated with depository institutions are not considered 
eligible lenders for the purposes of the Main Street Lending 
Program (Main Street). The Federal Reserve continues to 
consider options to expand the list of eligible lenders in the 
future. Currently, eligible lenders include: U.S. federally 
insured depository institutions (including banks, savings 
associations and credit unions), U.S bank holding companies, 
U.S. savings and loan holding companies, U.S. branches or 
agencies of foreign banks, U.S. intermediate holding companies 
of foreign banking organizations, and U.S. subsidiaries of the 
foregoing. Any changes to the list of eligible lenders will be 
announced on the Main Street website. \1\
---------------------------------------------------------------------------
     \1\ www.federalreserve.gov/monetarypolicy/mainstreetlending.htm

Q.2. Since March, occupancy rates for hotels, fitness centers, 
and entertainment venues have hit all-time lows. Business 
owners are now looking towards the Main Street Lending Program 
as their best lifeline for making it through the pandemic. I'm 
concerned that some of the lending limits based on leverage 
will prevent many businesses in these industries from 
participating. Is the Federal Reserve looking at unique 
business characteristics for different sectors when determining 
lending limits based on leverage? Is it doing so with an eye 
towards providing additional flexibility in future guidance, 
such as increasing the maximum loan size and modifying the 
borrower eligibility formulas to ensure businesses with high 
---------------------------------------------------------------------------
debt costs, such as hotels, can utilize the program?

A.2. Main Street is designed to be broad-based and not to 
target lending to any particular sector of the economy. We 
adopted criteria based on adjusted earnings before interest, 
taxes, depreciation, and amortization (EBITDA) because it is a 
key underwriting metric used by lenders in evaluating the 
credit risk of small and medium-sized businesses across 
industries. Lenders and borrowers regularly agree to adjust a 
borrower's EBITDA to accommodate differences in business models 
across industries, as well as one-time events that may 
positively or negatively impact a borrower's earnings. To 
account for differences based on industry or business models, a 
Main Street lender may adjust a borrower's EBITDA in the same 
way it has previously adjusted EBITDA when lending to that 
borrower or similarly situated borrowers, as applicable. When 
applied prudently, these adjustments provide a lender with a 
more accurate representation of a business's earnings capacity 
over time. Allowing for leverage of four or six times adjusted 
EBITDA is within the normal range of practice in lending to 
business borrowers.
    We will continue to monitor lending conditions broadly and 
consider adjustments to Main Street terms and conditions, as 
appropriate.

Q.3. Arizona is experiencing an all-time high in unemployment. 
Thousands of Arizonans are still struggling to successfully 
file for unemployment and receive benefits. I am concerned that 
with expanded unemployment benefits expiring at the end of 
July, the program will end before Arizonans see any relief. 
Does the Federal Reserve expect coronavirus-related layoffs to 
be reversed before the July deadline?

A.3. We expect that the recovery of the labor market will take 
some time. Indeed, at the June meeting of the Federal Open 
Market Committee (FOMC), participants' median expectation was 
for the unemployment rate to remain above its longer-run level 
at least through the end of 2022. \2\ While payroll employment 
rebounded strongly in May, June, and July, only about 40 
percent of the jobs lost in March and April have been recouped. 
\3\ Looking ahead, many indicators (including high-frequency 
indicators such as initial claims for unemployment insurance, 
mobility data, and employment in small businesses) suggest that 
the pace of improvement in the labor market has slowed. \4\ 
Furthermore, weekly COVID-19 case counts remain high, and some 
States have ramped up restrictions again. These developments 
might further restrain improvements in the labor market.
---------------------------------------------------------------------------
     \2\ The FOMC's Summary of Economic Projections for the June 2020 
FOMC meeting is available at https://www.federalreserve.gov/
monetarypolicy/fomcprojtabl20200610.htm.
     \3\ After falling by 22.2 million over March and April, nonfarm 
payroll employment increased by 9.3 million over May, June, and July.
     \4\ For example, after declining at a rapid clip through early 
June, initial claims for unemployment insurance have moved down more 
slowly, on net, since then and stood at a still-elevated level of 1.1 
million in the week ending August 15.

Q.4. In its guidance, the Federal Reserve has ruled that 
eligible issuers for its emergency lending facilities must be 
rated by major nationally recognized statistical rating 
organizations (NRSROs). In some cases, such as the Primary 
Market Corporate Credit Facility, eligible issuers must be 
rated by the three largest NRSROs specifically. Restricting 
eligibility to issuers with ratings from incumbent agencies 
unnecessarily excludes Arizona companies and BDCs, especially 
those with ratings from other tops NRSROs approved by the 
Securities and Exchange Commission. I am also concerned that 
the decision may undermine market confidence in rating agencies 
overall. The Federal Reserve stated it would consider expanding 
eligibility to other NRSROs. When will this consideration take 
place? If the Federal Reserve is considering expansion, what 
---------------------------------------------------------------------------
criteria will be used to make its determination?

A.4. The emergency lending facilities, including the Primary 
Market Corporate Credit Facility, were established to support 
the flow of credit to households, businesses, and communities. 
In addition, under the law, the loans the Federal Reserve 
extends must be satisfactorily secured and sufficiently protect 
taxpayers from loss.
    The Federal Reserve's initial priority was to announce the 
establishment of these facilities as quickly as possible, and 
therefore the facilities first used credit ratings from the 
three largest nationally recognized statistical rating 
organizations (NRSROs), given that the most widespread credit 
ratings used are from these three NRSROs.
    Consistent with our objectives to promote the flow of 
credit in a manner consistent with the law, the Federal Reserve 
undertook an analysis to determine whether to expand the list 
of eligible NRSROs. As part of this analysis, the Federal 
Reserve considered the design and focus of each facility, and 
the role that each NRSRO plays in the relevant market. 
Specifically, the Federal Reserve sought to balance the 
benefits of using ratings from the NRSROs most relied on by 
investors, with the need to ensure broad access to our 
programs. That analysis led the Federal Reserve to include 
three additional NRSROs in its facilities. The Federal Reserve 
hopes this change expands access to its facilities, while 
continuing to protect against taxpayer losses. The Federal 
Reserve will continue to monitor its facilities to ensure they 
are working as intended.

Q.5. In its April 30 guidance, the Federal Reserve set the 
terms for its Municipal Liquidity Facility program to limit the 
purchasing of short-term notes to cities with over 250,000 
residents and counties with over 500,000. I've heard directly 
from Arizona mayors and county leaders who do not meet these 
requirement but are in dire financial straits. Has the Federal 
Reserve made any further determinations regarding resident caps 
since guidance was release? If not, what kind of relief can the 
Federal Reserve provide to smaller counties and cities across 
the country?

A.5. At this time, the Municipal Liquidity Facility (MLF) will 
purchase up to $500 billion in shortterm notes directly from 
U.S. States, including the District of Columbia, U.S. counties 
with a population of at least 500,000 residents, and U.S. 
cities with a population of at least 250,000 residents. To 
provide relief to smaller counties and cities, eligible States, 
cities, and counties may use the proceeds of eligible notes 
sold to the special purpose vehicle under the MLF to purchase 
the notes of, or otherwise assist, any of their political 
subdivisions or other government entities. Under this facility, 
political subdivisions and other government entities are 
defined as any county, city, municipality, township, village, 
school district, special district, utility, authority, agency 
or other unit of government, as determined by the eligible 
State, city, or county. In recognition that it can be difficult 
in some cases, for various reasons, for States to borrow on 
behalf of their cities and counties, we announced on June 3, 
that every State can have at least two cities and counties that 
are able to directly issue to the MLF. Additional information 
on the eligibility requirements under the MLF can be found in 
the facility term sheet. \5\
---------------------------------------------------------------------------
     \5\ The MLF term sheet, effective June 3, 2020: 
www.federalreserve.gov/newsevents/pressreleases/files/
monetary20200603a1.pdf.
---------------------------------------------------------------------------
    The Federal Reserve will continue to closely monitor 
conditions in the primary and secondary markets for municipal 
securities and will evaluate whether additional measures are 
needed to support the flow of credit and liquidity to State and 
local governments.

Q.6. Under the CARES Act, the Paycheck Protection Program (PPP) 
was intended to target relief for businesses in underserved and 
rural markets, and for businesses owned by veterans, women, and 
minorities. A month after passage of the CARES Act, the 
Treasury allowed nondepository Community Development Financial 
Institutions (CDFIs) to be eligible PPP lenders in order to 
meet this end. As such, the Federal Reserve allowed CDFIs to 
participate in its PPP Liquidity Facility (PPPLF). With the 
exception of the PPPLF, CDFIs do not have access to any other 
13(3) facility. On May 8, 2020, the Small Business 
Administration (SBA) Inspector General released a flash report 
on the implementation of the PPP, which found the SBA did not 
follow Congressional intent in serving low-income and 
disadvantaged areas. CDFIs will need more liquidity support 
than the purchase of their PPP loans to assist the SBA and meet 
demand. Is the Federal Reserve open to considering the 
inclusion of CDFIs in its other facilities? Why was the 
determination to exclude CDFIs from other 13(3) facilities 
made?

A.6. Main Street considers eligible lenders to be U.S. 
federally insured depository institutions (including banks, 
savings associations, and credit unions), U.S. bank holding 
companies, U.S. savings and loan holding companies, U.S. 
branches or agencies of foreign banks, U.S. intermediate 
holding companies of foreign banking organizations, or any U.S. 
subsidiary of any of the foregoing. At this time, nonbank 
financial institutions are not considered eligible lenders for 
purposes of Main Street. However, the Federal Reserve 
recognizes the role that Community Development Financial 
Institutions play in provisioning credit for minority and low-
to-moderate income communities and is considering options to 
expand the list of eligible lenders in the future.

Q.7. Per its April 30 guidance, the Federal Reserve ruled that 
the Term Asset-Backed Securities Loan Facility (TALF) will not 
consider collateral without a credit rating from the highest 
investment-grade rating category from a major nationally 
recognized statistical rating organizations (NRSROs) as 
eligible collateral. Right now, the consumers and small 
business owners turning to personal loans are those most in 
need of support and access to credit at this difficult time. Is 
the Fed considering approving investment-grade personal loans 
as eligible collateral under TALF to ensure that these American 
consumers and small business owners are not left out?

A.7. As you note, only asset-backed securities (ABS) with 
triple-A ratings from at least two nationally recognized 
statistical rating organizations are eligible collateral for 
Term Asset-Backed Securities Loan Facility (TALF) loans. In 
reaching this determination, the Federal Reserve Board (Board) 
balanced two considerations. First, the Board generally accepts 
as TALF collateral ABS asset classes that fund a material share 
of economic activity, such as credit card, auto, and student 
loan ABS, and ABS collateralized by small business loans with 
Small Business Administration guarantees. The objective of 
facilitating the flow of credit to consumers and businesses is 
typically not at odds with the restriction that only triple-A 
securities are TALF-eligible. In most major classes of ABS, a 
large share of the underlying bonds are rated triple-A, so 
enough triple-A TALF-eligible ABS exist for the program to 
achieve its objective.
    Second, under the restrictions of section 13(3) of the 
Federal Reserve Act, the Board and Reserve Banks must take 
steps to ensure the protection of the taxpayer, including by 
assigning a ``lendable value to all collateral.'' Restricting 
TALF-eligible collateral to bonds with triple-A ratings helps 
ensure that the Board and the Reserve Banks are complying with 
section 13(3).
    In the case of personal loans, although these loans provide 
access to credit to some consumers and small businesses, other 
forms of credit are more economically significant for 
consumers. In addition, the majority of personal-loan borrowers 
obtain these loans from banks, not from the nonbank lenders 
that are dependent on ABS for funding. As a result, personal 
loans are still available currently to consumers. Finally, 
personal loan ABS are difficult to reconcile with the section 
13(3) restrictions. As you note, only a small share of these 
ABS obtain triple-A ratings, and because they are a relatively 
new asset class, comprehensive information is not available 
about their performance in stressed economic periods.
    The Board will continue to evaluate the feasibility and 
efficacy of adding other asset classes to or expanding the 
scope of existing asset classes eligible for the TALF.

Q.8. Per its April 30 guidance, the Federal Reserve ruled that 
TALF will only consider collateral with a credit rating in the 
highest long-term or short-term investment-grade rating 
category from at least two NRSROs. Self-employed borrowers 
generally experience greater income volatility and rely on 
unconventional forms of documentation to access credit. As 
such, the self-employed often struggle to access credit 
affordably. However, like other small businesses, self-employed 
business owners are important contributors to Arizona's 
economy. Are there plans to allow AAA residential mortgage-
backed securities as eligible collateral under TALF?

A.8. In determining whether a certain type of ABS should be 
eligible collateral for TALF loans, the Board considers whether 
accepting an asset class will provide material support to the 
economy and whether inclusion of the asset class is appropriate 
under the restrictions of section 13(3) of the Federal Reserve 
Act. In particular, under section 13(3), the Board and Reserve 
Banks must take steps to ensure the protection of the taxpayer, 
including by assigning a ``lendable value to all collateral.'' 
To satisfy this restriction, we prioritize categories of ABS 
where a large share of issuance is routinely rated triple-A by 
the rating agencies and where comprehensive information is 
available about credit performance in different economic 
environments, including stressed conditions.
    Residential mortgage-backed securities (RMBS) is one of the 
largest ABS categories not currently eligible as TALF 
collateral, and a large share of RMBS issuance is typically 
rated triple-A by the rating agencies. However, some RMBS have 
performed poorly in times of stress, and RMBS collateralized by 
mortgages with low or nonstandard documentation have a 
particular history of underperformance. The types of ABS 
currently accepted by the TALF generally have a long history of 
performing well in stressed economic conditions. The Board 
relies on that history of strong performance to ensure that the 
TALF is consistent with section 13(3).
    The Board recognizes that the exclusion of RMBS from TALF 
has an effect on mortgage credit availability and continues to 
consider whether some types of RMBS can be accepted by the TALF 
in a manner consistent with section 13(3).

Q.9. Given record high unemployment levels in Arizona, mortgage 
forbearance and delay of evictions are a very temporary 
solution. Servicers of home loans backed by Fannie Mae, Freddie 
Mac, and Ginnie Mae are not only required to make mortgage 
payments on behalf of the borrowers, but also payments on 
property taxes, homeowners and mortgage insurance, and 
homeowner association dues. As more and more homeowners enter 
forbearance, both independent mortgage servicers and community 
banks will need liquidity support. How do your organizations 
plan to deal with mass forbearance and provide liquidity to 
struggling servicers? Service transferring is already a chaotic 
process for borrowers. Can a program be created to avoid 
borrowers having their service transferred during such a 
critical time?

A.9. The Federal Housing Finance Agency (FHFA), Fannie Mae, 
Freddie Mac, and Ginnie Mae have announced helpful measures 
that will make it easier for mortgage servicers to carry out 
the forbearance requirements of the Coronavirus Aid, Relief, 
and Economic Security (CARES) Act. Moreover, the Federal 
financial regulatory agencies and the State regulators have 
taken a number of steps, including those listed below, to 
clarify the responsibilities of mortgage servicers and to 
address issues related to the transfer of residential 
mortgages.

    In April, the Board joined other Federal financial 
        institution regulators, the Consumer Financial 
        Protection Bureau (CFPB), and State regulators in 
        issuing a COVID-19 emergency joint policy statement, 
        \6\ which outlined various practices and policies to 
        provide mortgage servicers clarity and to assist them 
        in complying with the CARES Act provisions providing 
        forbearance to consumers impacted by COVID-19. The CFPB 
        issued related FAQs related to mortgage forbearance. 
        \7\
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     \6\ www.federalreserve.gov/newsevents/pressreleases/
bcreg20200407a.htm (April 7, 2020); revised from 
www.federalreserve.gov/newsevents/pressreleases/bcreg20200322a.htm 
(March 22, 2020). See also, www.federalreserve.gov/newsevents/
pressreleases/bcreg20200403a.htm (April 3, 2020).
     \7\ https://files.consumerfinance.gov/f/documents/cfpb--mortgage-
servicing-rules-COVID-19--faqs.pdf (April 3, 2020).

    In April, the CFPB outlined practices to provide 
        mortgage servicers clarity, facilitate compliance, and 
        prevent harm to consumers during the transfer of 
        residential mortgages. \8\
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     \8\ www.consumerfinance.gov/about-us/newsroom/cfpb-outlines-
mortgage-loan-transfer-process-prevent-consumerharm/.

    In May, the CFPB and State regulators issued a 
        consumer guide to mortgage relief options. \9\
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     \9\ www.consumerfinance.gov/about-us/newsroom/cfpb-csbs-consumer-
guide-mortgage-relief-options/

    In June, the CFPB and the State regulators issued 
        additional guidance to mortgage servicers to assist 
        them in complying with the CARES Act provisions 
        providing forbearance to consumers impacted by COVID-
        19. \10\
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     \10\ www.consumerfinance.gov/about-us/newsroom/cfpb-and-state-
regulators-provide-guidance-assist-borrowersCOVID-19/

    These regulators continue to be in close communication with 
each other and with other agencies, and stakeholders that have 
responsibilities for mortgage servicers. We continue to closely 
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monitor developments in this area.

Q.10. Requiring servicers to advance property taxes, hazard 
insurance, homeowners association dues, and other assessments 
is no small task. Servicers typically advance these amounts 
when borrowers face financial shortfalls or after a natural 
disaster without any problem, however, the national scale of 
this pandemic is unpresented and our municipal and county 
budgets are already strained. Both Fannie Mae and Ginnie Mae 
have taken steps to moderate the servicer advancing burdens for 
principle and interest. Have your organizations contemplated 
the risks to cities and counties if liquidity is not restored? 
Have you considered standing up a liquidity facility to help 
servicers make these tax and insurance advances, particularly 
in cities and counties that are not able to access the 
Municipal Liquidity Facility?

A.10. Mortgage-backed securities (MBS) guarantors such as 
Fannie Mae, Freddie Mac, and Ginnie Mae have a strong incentive 
to ensure that servicers advance payments to cities, counties, 
insurers, and other entities, since a foreclosure stemming from 
a tax lien or homeowners' association dues lien would affect 
the MBS guarantor's ability to recover its own losses in the 
event of a borrower default. These guarantors are continuously 
assessing whether the servicers have the resources to live up 
to their responsibilities under the servicing agreements.
    As you note, the steps that Fannie Mae, Freddie Mac, Ginnie 
Mae, and the FHFA have taken have moderated the strains 
associated with advances of principal and interest, and thereby 
left servicers with more cash available to meet their other 
obligations. Mortgage servicers that also originate mortgages 
have been able to use the proceeds from the recent high levels 
of mortgage refinancing activity to fund tax and insurance 
advances.
    All the entities with a regulatory stake in the solvency 
and stability of mortgage servicers noted above continue to be 
in close communication with each other. At the Federal Reserve, 
we continue to monitor developments with mortgage servicers 
closely. We remain prepared to use our full set of tools to 
support the flow of credit to households and businesses.

Q.11. Nonprofits serve on the front lines of the coronavirus 
pandemic helping feed Arizona families, providing Arizonans 
safe shelter, and connecting Arizonans to critical health 
services. To continue their important work and meet growing 
need they may need access to the the 13(3) facilities. What can 
you do to ensure that nonprofits with up to 10,000 employees 
receive additional financial assistance?

A.11. Nonprofit organizations are a critical part of our 
economy, employing millions of people, providing essential 
services to communities, and supporting innovation and the 
development of a highly skilled workforce. We announced on June 
15 that we would be seeking public feedback on a proposal to 
expand Main Street to provide access to credit for nonprofit 
organizations described in sections 501(c)(3) and 501(c)(19) of 
the Internal Revenue Code that meet minimum eligibility 
criteria. \11\ The Board received comments from a wide range of 
stakeholders, and in response, on July 17 we announced revised 
term sheets that expanded the range of nonprofit organizations 
eligible to obtain Main Street loans. Under the updated terms, 
the Federal Reserve will offer loans to small and medium-sized 
nonprofits that were in sound financial condition before COVID-
19. Nonprofit organizations will need to meet various 
eligibility criteria to qualify, including financial 
eligibility criteria based on operating performance, liquidity, 
and ability to repay debt. For additional information on the 
nonprofit facilities, please see the facility term sheets. \12\
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     \11\ www.federalreserve.gov/newsevents/pressreleases/
monetary20200615b.htm
     \12\ For the Nonprofit Organization Expanded Loan Facility term 
sheet, see https://www.federalreserve.gov/newsevents/pressreleases/
files/monetary20200717a1.pdf. For the Nonprofit Organization New Loan 
Facility term sheet, see https://www.federalreserve.gov/newsevents/
pressreleases/files/monetary20200717a2.pdf.
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