Banking and Finance Law Daily Senate Banking hearing reviews CARES Act relief actions by Fed, Treasury
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Tuesday, May 19, 2020

Senate Banking hearing reviews CARES Act relief actions by Fed, Treasury

By Colleen M. Svelnis, J.D.

The Senate Banking committee heard testimony from the Fed Chair and Treasury Secretary on the agencies’ efforts to implement the CARES Act relief provisions.

The Senate Committee on Banking, Housing, and Urban Affairs held a virtual hearing entitled "The Quarterly CARES Act Report to Congress." As required under Title IV of the CARES Act, the committee heard testimony from Secretary of the Treasury Steven T. Mnuchin and Federal Reserve Board Chair Jerome H. Powell, detailing how their agencies have used the funds provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to create programs that support Americans during the COVID-19 pandemic and helps stabilize the infrastructure of the economic system. Committee Chairman Sen. Mike Crapo (R-Idaho) stated that 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."

Crapo stated that Title IV of the CARES Act 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. He called the 13(3) facilities "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 of the CARES Act also 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.

Crapo also praised the Small Business Association (SBA) and the Treasury Department for working "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."

Senator Sherrod Brown (D-Ohio), Ranking Member of the Banking Committee, also spoke at the hearing, stating that he was looking forward to hearing from the agency heads "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." According to Brown, the pandemic is "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" and that "Workers are getting left behind, again."

Brown letter. Brown also sent a letter address to Mnuchin and Powell urging them to "avoid the mistakes" of the Paycheck Protection Program (PPP), by focusing on small and medium-sized businesses, underserved communities, and improving data collection and transparency. The letter addresses the $600 billion Main Street Lending Program (MSLP) and other facilities being developed by the Fed and the Treasury Department. Like the PPP, the MSLP uses banks to provide funding to businesses. Brown worries that placing banks at the center of the program "creates an overreliance on the ability and willingness of banks to help all businesses that need it by making the extra effort to go beyond the safest, easiest, and most lucrative customer relationships." In the first round of the PPP, the $349 billion allocated by Congress was exhausted in less than two weeks, with more than 25 percent of the funding going to less than two percent of the firms, according to the letter. Banks also earned $10.5 billion in processing fees in the first PPP round.

Brown asked for the agencies to incorporate new operational and program features into the MSLP to ensure that the American economy has the tools it needs to recover after the Coronavirus Pandemic:

  1. prioritize access for small and medium sized businesses and lending to underserved areas;
  2. require banks to work with new customers to access the MSLP;
  3. build the program with transparency in mind;
  4. provide standardized documentation for applicants; and
  5. focus on small and medium-sized businesses that were doing well before the pandemic.

Mnuchin testimony. Treasury Secretary Steven T. Mnuchin testified about the Treasury Department’s efforts to implement the CARES Act. He stated that the Treasury has "worked closely with the Small Business Administration on the PPP to ensure the processing of more than 4.2 million loans for over $530 billion," including nearly 400 Community Development Financial Institutions and Minority Depository Institutions. "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 approved multiple emergency lending facilities committed up to $195 billion in credit support under the CARES Act." According to Mnuchin, Treasury has the remaining $259 billion "to create or expand programs as needed."

Powell testimony. Fed Chair Jerome H. Powell testified about the Fed’s efforts since the pandemic arrived, during which over 20 million people have lost their jobs, reversing nearly 10 years of job gains. In addition to the economic disruptions, Powell stated, "the virus has created tremendous strains in some essential financial markets and impaired the flow of credit in the economy." With regard to the Fed’s monetary policy, it lowered the policy interest rate to near zero in March, and according to Powell, expect to maintain interest rates at this level until the economy has weathered recent events and is on track to achieve maximum-employment and price-stability goals. Powell stressed that the "tools that the Federal Reserve is using under its 13(3) authority are for times of emergency."

To help stabilize short-term funding markets, the Fed lengthened the term and lowered the rate on discount window loans to depository institutions. The Fed took steps to ensure credit would flow to borrowers and support economic activity establishing Term Asset-Backed Securities Loan Facility. The Fed also took measures in four main 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.

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