Senate Banking Committee members criticized financial regulators’ coronavirus responses Tuesday in the panel’s first remote hearing, telling the officials that too many businesses and public bodies were slipping through the gaps of aid programs.
With regulators and senators video-conferencing in, lawmakers took their first look at the financial system’s handling of the COVID-19 pandemic and trillions of dollars in lending programs Congress established in four laws enacted to provide relief to businesses that had to shut down or curtail production.
“You all have two basic jobs: First, to make sure the financial system is safe and strong, so that a public health crisis or a natural disaster doesn’t also turn into a financial crisis. Second, to make sure the banking system is actually getting money to the people who grow the real economy,” said ranking member Sherrod Brown of Ohio. “You’re failing on both of those jobs.”
Large parts of the roughly $2.0 trillion, third rescue package run through the nation’s banks and credit unions. The law backed the Fed’s interventions into markets with $454 billion to support more than $4 trillion in credit to financial institutions and larger corporations through nine lending facilities. The third and fourth rescue laws also provided $659 billion for the Paycheck Protection Program’s forgivable loans to small businesses that are distributed through financial institutions.
The idea is to let smaller businesses essentially get grants to keep workers on payrolls during the economic shutdown caused by the pandemic, while encouraging larger businesses to seek loans to bridge the crisis.
Republicans questioned some of the restrictions on access to the Fed’s Main Street Lending Facility — which sets a minimum loan size of $500,000, larger than some mid-sized businesses can afford — and the Primary Market Corporate Credit Facility’s credit rating requirements.
“We’ve got a bit of a doughnut hole in the CARES Act,” said North Carolina Republican Thom Tillis, using the acronym for the third rescue bill. “’I’m worried about some [businesses] that are in between: Too big for paycheck protection, but not really in a position financially to go after Main Street Lending [Facility].”
Senate Banking Chairman Michael D. Crapo of Idaho also pressed Federal Reserve Vice Chairman Randal Quarles to lower the bar to entry to the Fed’s municipal liquidity facility, which limited access to counties with 500,000 or more residents and cities with 250,000 or more.
“I remain concerned that the inclusion of population thresholds for cities and states that were not a part of the CARES Act will still impede access to smaller and rural communities,” Crapo said. “As it stands, there is currently no city or county in Idaho that qualifies.”
Republican Sen. Patrick J. Toomey of Pennsylvania asked Quarles to consider adding a requirement on the Primary Market Corporate Credit Facility to require those larger corporations to immediately pay out their accounts payable with the facility’s funds. Toomey, who sits on the Congressional Oversight Commission overseeing the Fed facilities, argued that would help money flow to smaller and mid-sized businesses that act as suppliers to larger companies.
Supplier contracts often allow accounts to go unpaid for a few months, so Toomey’s idea could flush money downstream more quickly. Quarles said he’d look into the suggestion.
The e-hearing ran into a handful of technical glitches.
Crapo skipped FDIC Chairwoman Jelena McWilliams when she couldn’t connect for her opening remarks. “I’d blame technical difficulties, but I just wanted to save the best for last,” she joked after joining belatedly.
But her sound then cut out, forcing Crapo to ask other senators if they could hear her. McWilliams unmuted herself and continued.
In their opening remarks, the Trump-appointed regulators highlighted the actions they’ve taken to operate remotely and promote lending during the crisis. Democrats panned some of those temporary deregulatory actions.
“You have been too eager to provide what you call ‘regulatory relief’ — and what the rest of us call favors for Wall Street and the biggest corporations,” said Brown. “Your responses to the pandemic seem to be more of the same, relying on the same old trickle-down economics that we have seen, over and over again, doesn’t work.”
While the Paycheck Protection Program encourages borrowers to retain staff and places other restrictions on the money’s use, there are relatively few restrictions on what financial institutions and larger corporations may do using money from the Fed’s emergency facilities.
Democrats have tried jaw-boning regulators into imposing restrictions such as merger and acquisition prohibitions or employee retainment requirements that they were unable to work into the rescue bills.
While other bank regulators delayed or extended some rulemaking deadlines because of COVID-19, the Office of the Comptroller of the Currency plowed ahead on its controversial overhaul of the Community Reinvestment Act, refusing demands from both community groups and banks to extend the comment period that ended April 8.
The FDIC signed onto the proposed rulemaking, but the Fed didn’t, meaning that banks may have to operate under different requirements depending on their primary regulator.
Noting that minority and low-income communities have been hit disproportionately hard by COVID-19, Brown said that the OCC-FDIC proposal would undermine access to credit in those areas.
“You’re proposing to do this at the moment when these communities most need access to loans and services from these banks,” Brown said. “Why are you plowing ahead?”
Comptroller Joseph Otting defended the decision to change the redlining remediation rules, saying it would improve credit access in minority neighborhoods and that his office received 7,500 comments on the proposals. Many of those comments, from both financial institutions and low-income community advocates, panned the proposed changes.
One reason the administration is moving fast on the community reinvestment rules is the Congressional Review Act, which allows Congress to rescind — with just a simple majority in the Senate — regulations finalized in the prior 60 legislative days.
Before President Donald Trump took office, the law had been used just once. The GOP has since used it 16 times to nullify Obama-administration rules. With Democrats threatening to take Senate seats in North Carolina, Maine, Arizona and Colorado, Republican lawmakers face a growing likelihood of congressional action to undo the regulations.
According to the 2020 legislative calendar laid out before the pandemic, the congressional review deadline would be in mid-July. But that could be pushed back if Congress adds legislative days late in the year — a move made more likely by April’s unplanned month-long recess, which has delayed the start of an annual appropriations process that has rarely wrapped up on time in recent years.