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As Fed helps businesses, Democrats ask: What about consumers?

WASHINGTON — As the Senate Banking Committee met Wednesday to review the performance of the Federal Reserve’s emergency lending facilities, Democrats on the panel lamented lawmakers' failure to to provide additional direct financial assistance to consumers during the coronavirus pandemic.

The hearing included testimony from business and labor representatives on how Congress could make the Fed credit vehicles such as the Main Street Lending Program and Municipal Liquidity Facility more accessible to businesses. Democrats insisted that the facilities are not enough and direct aid to consumers is needed.

“There’s broad agreement that the economy is in trouble,” said Sen. Sherrod Brown of Ohio, the top Democrat on the Senate Banking Committee. “The best way to address it is through direct help to households. It means unemployment insurance. It means rental assistance. It means support for state and local governments.”

Sen. Chris Van Hollen, D-Md., echoed Brown’s sentiment and said renters in particular need to be able to pay their landlords.

“I wish there was a broader recognition that getting funds into the hands tenants to pay their landlord on the residential side and also on the commercial side is something that would be very important at this time,” Sen. Chris Van Hollen, D-Md., said.
“I wish there was a broader recognition that getting funds into the hands tenants to pay their landlord on the residential side and also on the commercial side is something that would be very important at this time,” Sen. Chris Van Hollen, D-Md., said.
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“I wish there was a broader recognition that getting funds into the hands tenants to pay their landlord on the residential side and also on the commercial side is something that would be very important at this time,” Van Hollen said.

A focus on the Fed facilities comes as the central bank continues to make aid available to middle-market firms through the Main Street Lending Program, in which participating banks make loans that the Fed then purchases. The program is available to companies with up to 15,000 employees or $5 billion in annual revenue, and provides loans of $250,000 to $300 million.

But the Democrats' insistence that the focus of federal aid should be on consumers was backed by witnesses testifying before the panel.

William Spriggs, an economics professor at Howard University who appeared on behalf of the American Federation of Labor and Congress of Industrial Organizations, pushed for direct unemployment aid. He said that the $600 in weekly supplemental unemployment assistance from the Coronavirus Aid, Relief, and Economic Security Act that expired at the end of July was key in preventing debt accrual.

“We have to pump back into the system the money that we are losing from the loss in payroll,” Spriggs said. “Without that, we are going to face massive problems for loan holders when it comes to commercial real estate. The way to solve it isn’t to help the banks at the end. It’s to help the real economy on the front side and have workers have the money to pay the rent. Even with eviction abatement, you got to remember that people are still accruing the debt of holding that rent.”

Jeffrey DeBoer, CEO of the Real Estate Roundtable, said eviction moratoriums aren’t sufficient because landlords still to need to pay their mortgages.

“That problem is only going to get worse and … the moratorium does not solve the problem,” DeBoer said. “It creates a bigger problem once the moratorium is lifted without rental assistance.”

While there was a push from some Democrats to increase direct assistance to renters and borrowers, Sen. Bob Menendez, D-N.J., also questioned whether the Fed’s Municipal Liquidity Facility is structured in a way that will actually help cities and localities.

“Many of us have been disappointed by the ineffectiveness of the Fed’s Municipal Liquidity Facility,” Menendez said. “It would be a massive policy failure if we failed to get money into the hands of state and local governments. … Currently loans under the Municipal Liquidity Facility would have to be paid back within three years. Wouldn’t you agree that just like in the great recession the fiscal pressures on states and localities are probably going to still be there several years beyond that?”

Spriggs said the loan terms through the Municipal Liquidity facility could be extended.

“The maturity on those loans has to be greater to really provide the smoothing of income that the state and local governments need,” Spriggs said. “Extending the maturity and lowering the fees, the Fed is putting too high of interest payments on state and local governments through that facility.”

Sen. Tim Scott, R-S.C., also suggested that the loan size for the Main Street Lending Program could be lowered.

“How do you think reducing the minimum loan size from the Main Street lending program from the $250,000 level, how would that create more access to resources for those midsized businesses?” Scott said. “And relatedly, how might the Fed and Treasury reconsider the program’s administrative fee model to better incentivize lenders and small service providers.”

Hal Scott, president of the Committee on Capital Markets Regulation, said midsize businesses would be better served with changes to the loan terms in the Main Street Lending Program.

“I think decreasing the loans size would be really essential for the smallest business,” Scott said. “I think the problem for the midsized businesses is the general terms. About how long the maturity is, how long they get to pay it back, what the interest rates are.”

As senators debated how to continue the government’s response to the impact of the coronavirus pandemic on the overall U.S. economy, some members sounded the alarm on the increasing U.S. debt.

“One thing I think we all can agree on is that our debt now is staggering, I think $26 trillion,” said Sen. John Kennedy, R-La.

DeBoer said his recommendations for the Main Street program, such as loosening eligibility and affiliation restrictions on borrowers and extending maturing and amortization timelines, could be accomplished without increasing the U.S. debt.

“The recommendations that I have made on the Main Street Lending Program … really require no additional funds from the federal government,” DeBoer said. “They are administrative. They could be done tomorrow by the Treasury and the Fed if they wanted to.”

This article originally appeared in American Banker.
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Federal Reserve Coronavirus Small business lending Commercial mortgages CARES Act Senate Banking Committee
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