The Treasury Department is seeking to expand a handful of Federal Reserve programs used to push markets through the early days of the coronavirus crisis, but will end with several others ending later this year.
Among those asked by Finance Minister Stephen Mnuchin to extend the Fed for another 90 days are programs that provide short-term loans for commercial securities of the business, as well as another for the functioning of the money market and a stop related to the Salary Protection Program. .
However, Mnuchin also called for the completion of other programs supported by state capital for the time being. These include two facilities that have purchased corporate bonds, as well as the Main Street Lending Program, which targets small and medium-sized businesses.
The programs were to expire at the end of the year. They were created in early March to open markets that had been frozen during a panic sale as fears of a pandemic grew.
But they were used sparingly for the most part and have been the subject of some criticism, especially the Main Street facility.
“While part of the economy is still severely affected and needs additional support, financial conditions are responding and the use of these facilities is limited,” Mnuchin said in a letter to Fed Chairman Jerome Powell.
Mnuchin said, however, that “with a lot of caution” he would like the Fed to keep alive the mechanism for financing trade papers and the mechanism for lending to the money market, neither of which requires approval from the Fed, as well as the liquidity mechanism of PPP.
While the Fed and the Treasury worked closely together during the program crisis, they differed on their fate.
“The Federal Reserve would prefer the full range of emergency facilities created during the coronavirus pandemic to continue to play an important role in supporting our still tense and vulnerable economy,” the Fed said in a statement.
Programs that have received collateral from the Ministry of Finance under the Care Act will be completed.
These include the primary and secondary market credit mechanisms under which the Fed buys corporate bonds, as well as the Municipal Liquidity Mechanism for State and Local Governments, the Main Street Program and the Term Assets Loan Condition to preserve the market for these liquid securities.
In addition, Mnuchin asked the Fed to return the unused portion of the $ 455 billion, which he said would be misappropriated.
The programs together do not come close to their capacity of over $ 2 trillion.
In particular, the Main Street program, which targets businesses with fewer than 15,000 employees, has undergone several changes, none of which have attracted significant interest from either borrowers or lenders. By early November, Maine Street had lent only $ 4 billion, compared to its $ 600 billion capacity.
“The Maine Street lending program, which was supposed to be low-interest loans to help people stay afloat, is an absolute failure. “I don’t know of a single hotelier across the United States who has received a loan from Maine Street,” Chip Rodgers, chief executive of the American Hotel and Accommodation Association, told CNBC’s Power Lunch on Thursday.
However, Mnuchin, along with Powell and other Fed officials, have repeatedly stressed that the programs have been successful even with their ease of use. Markets work efficiently and programs can be restarted if needed.
“Should they be extended? This leads to a lot of debate, but I will make sure that whether we extend them or now, it may not be this material for the financial markets,” St. Louis President James Bullard said earlier this week. . “We can always start liquidity programs again in the future.”