WASHINGTON – The Treasury Department and Federal Reserve have lent hardly any money under a $500 billion fund created by the economic rescue law passed in response to the coronavirus crisis, a congressional oversight panel says in a new report.
The Treasury fund is being used to guarantee new, expansive Federal Reserve lending programs to companies, states and cities that could be leveraged to reach as much as $4.5 trillion.
So far only one of the new Fed programs has started operating, a lending fund likely to be tapped by large public companies, the report by the Congressional Oversight Commission said. The program was started on May 11 with $37.5 billion from Treasury.
The oversight panel issued its first report Monday even though it still does not have a chairman. House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Mitch McConnell, R-Ky., have not agreed on a chair, leaving the five-member commission without a leader.
The commission has four other members appointed by congressional leaders. They produced a 17-page report that contains mostly questions about how the Treasury fund is going to function.
For instance, the panel asked how Treasury and the Fed will assess the program's success or failure. If the agencies use economy-wide metrics, such as economic growth, unemployment rates or wage growth, "how will they isolate the effects of this program from other factors, including other federal and state relief measures?'' the commission asked.
Federal Reserve Chairman Jerome Powell is pledging to reveal names and other details of entities that borrow from emergency programs the central bank has set up to offset the economic hit from the pandemic. In prepared testimony for a Tuesday congressional hearing, Powell says the Fed will disclose amounts borrowed and interest rates levied under programs to provide credit for large corporations, state and local governments and medium-sized businesses.
He and other officials "recognize that the need for transparency is heightened when we are called upon to use our emergency powers,” Powell's testimony says.
The Fed slashed its benchmark interest rate to near zero as stock markets plunged in March and bond markets froze. The Fed has also intervened by buying $2.1 trillion in bonds in an effort to keep interest rates low and smooth the flow of credit.
Powell said Sunday on CBS' “60 Minutes” that Congress and the Fed must be prepared to provide additional financial support to prevent permanent damage to the economy from widespread bankruptcies among small businesses and long-term unemployment.
The $500 billion Treasury fund includes $46 billion to make loans and loan guarantees to the airline industry, which has been hit hard by the pandemic as air traffic has come to a near halt. None of that money has been disbursed.
The Federal Reserve is setting up a Main Street Lending Program intended to facilitate lending by banks to small and medium-size businesses. The program would support lending up to $600 billion, with Treasury providing $75 billion to offset any potential losses. That program also has not disbursed any money, the report said.
The economic rescue law, also known as the Cares Act, imposed a number of restrictions on the use of the Treasury fund. For example, none of the $500 billion can support an entity in which top Trump administration officials, members of Congress, or certain family members have a controlling interest.
The Fed says it takes time to ensure that the program includes legal language that protects taxpayers. The Fed was criticized for failing to ensure such safeguards during the 2008 financial crisis, most notably to bail out insurance giant AIG.
The failure by Pelosi and McConnell to agree on a chair for the oversight head has disappointed watchdog groups that have pushed for stricter oversight of the $2 trillion rescue law. Representatives for Pelosi and McConnell said they had no update on when the oversight position would be filled.
Treasury Secretary Steven Mnuchin is set to testify along with Powell on Tuesday before the Senate Banking Committee.
Mnuchin says in prepared testimony that the Paycheck Protection Program to provide forgiveable loans to small businesses has processed more than 4.2 million loans worth over $530 billion. The program is working “to keep tens of millions of hardworking Americans on the payroll,'' Mnuchin says. The loans don't have to be paid back as long as the borrower uses 75% of the money to cover payroll.
AP economics writers Christopher Rugaber and Martin Crutsinger contributed to this report.