Democrats and Republicans split on Treasury Secretary Steven Mnuchin’s decision to end most of the emergency lending facilities established at the onset of the coronavirus pandemic at a Senate Banking Committee hearing Tuesday.
“Even the Chamber of Commerce said that shutting down the emergency lending programs ‘closes the door on important liquidity options for businesses at a time when they need [them] the most,’” said Sen. Sherrod Brown, D-Ohio, the panel’s ranking member.
But at the hearing to take testimony from Mnuchin and Federal Reserve Chairman Jerome Powell, Chairman Michael D. Crapo, R-Idaho, disagreed. “Secretary Mnuchin, I’m actually quite surprised to hear you criticized for following the law,” Crapo said.
As the economy began to shutter in an effort to slow the spread of COVID-19 in March, the financial markets also began to shut down until the Fed started to set up emergency lending backstops. Congress gave the Treasury secretary $500 billion to underwrite those credit facilities and other direct lending programs as part of the $2 trillion relief package in March.
Mnuchin last month asked the Fed to end most of the emergency credit facilities, saying that the law only foresaw the programs operating until the end of the year. In a rare public disagreement, the Fed said it would prefer to maintain the backstops into next year — something it would have the authority to do only with Mnuchin’s blessing. But in his testimony Tuesday, Powell only obliquely referenced the disagreement as he said the central bank would end the programs and return the unused funds.
“Our emergency lending powers require the approval of the Treasury and are available only in very unusual circumstances, such as those we find ourselves in today,” Powell said.
The Fed set up 13 lending facilities, but most were little used. Merely establishing them calmed markets and allowed banks, municipalities and large corporations to continue to rely on private sector lending for financing needs.
Critics have argued that the terms of the Fed programs, which could have supported more than $4 trillion in loans, should have been eased to provide loans at rates more favorable than in the private market. But the Treasury stood opposed, and Powell has said such actions would amount to the Fed providing fiscal stimulus.
Sen. Patrick J. Toomey, R-Pa., expected to be the panel’s top Republican in the next Congress, defended the end to the backstops, saying that expanding them would be impermissible fiscal action. “It’s up to Congress to decide what to do about that. It is not up to the Fed to lend money to what are probably insolvent companies,” he said.
Four of the Fed’s programs will be extended to the end of March: the Paycheck Protection Program Liquidity Facility, the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility and the Primary Dealer Credit Facility.