WASHINGTON — Federal Reserve Chairman Jerome Powell on Tuesday said financial institutions are showing interest in the central bank's program to facilitate loans for midsize companies, and left open the possibility of additional stress tests to gauge how banks are dealing with the coronavirus crisis.
In testimony before the Senate Banking Committee, Powell updated the lawmakers about the progress of a number of its emergency credit facilities — launched to combat the economic effects of the pandemic — including the Main Street Lending Program and the Municipal Liquidity Facility.
The Main Street program, in which the Fed will participate in loans to small and medium-sized companies struggling from the pandemic, had prompted questions over its delayed launched and eligibility requirements. But after the central bank tweaked those requirements and opened up lender registration Monday, Powell said the Fed is pleased so far with the reception.
There is "substantial interest on the part of bankers" in the Main Street program, Powell said.
Powell told the committee that the Fed is still considering whether banks will need to resubmit their capital plans or conduct additional stress tests to take issues related to the pandemic into account. The central bank will announce a decision on June 25, when it also releases results from the Dodd-Frank Act Stress Tests and Comprehensive Capital Analysis and Review.
Banks subject to the stress tests have also been required to undergo "sensitivity analyses" to assess the effects of the pandemic on their balance sheets.
In addition to those analyses, Powell said the Fed is “actively engaged in considering” whether the banks will be required to do additional stress testing work related to the coronavirus crisis or resubmit their capital plans.
Powell also continued to pour cold water on the potential for a Fed facility for mortgage servicers to cover skipped payments by homeowners hit by the pandemic.
“I'd say we were more worried a couple of months ago about stresses building" in mortgage servicing "than we are now,” Powell said. “The stresses have moved down a little bit. Of course we'll be monitoring that carefully, but as of right now, it doesn't look like there is a need for such a facility.”
Under questioning about the stress tests by Sen. Mike Rounds, R-S.D., Powell reiterated that the Fed plans to disclose banks' results from the COVID-19-related sensitivity analyses.
“Yes, I believe it will and, of course, we're just in the process — that's nine days away, so we're just working on that now,” Powell said.
Several senators at the hearing and Powell noted that minority communities have been hit particularly hard by the pandemic.
The Fed's June monetary policy report, Powell said, showed that "low-income households have experienced by far the sharpest drop in employment while job losses for African Americans, Hispanics, and women had been greater than that of other groups."
“The burden of the downturn has not fallen equally on all Americans," Powell said. "Instead, those least able to withstand the downturn have been affected most. … If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing.”
Sen. Mark Warner, D-Va., suggested that Congress should “provide direct private and public money" for community development financial institutions and minority depository institutions to facilitate economic growth in struggling low-income communities.
Warner added that members of Congress are considering creating a facility, similar to the Term Asset-Backed Securities Loan Facility, to help “clean up the balance sheets” of community development financial institutions and minority depository institutions.
For the Main Street Lending Program, Powell told senators that the Fed “will certainly be looking carefully at what the population of loans is.”
