U.S. Treasury Secretary Steven Munuchin and Federal Reserve Chair Jerome Powell testified before the hearing on the oversight of the House Financial Services Committee (Supreme-19) overseeing the Treasury Department and the Federal Reserve’s Coronavirus Disease (COVID-19). September 22, 2020.
Joshua Roberts | Pool | Reuters
Trade Secretary Steve Munuchin’s decision to allow several of the Fed’s emergency financing programs to expire on December 31 will reduce the central bank’s ability to back up the financial system financially. But those familiar with the situation say the Fed will still have significant lending power in the event of a shock to the system.
Manuchi issued a letter on Thursday saying he would not increase the Fed’s programs in which Congressional Care Act funds would be used. Created in response to the financial turmoil with the spring downturn, those programs gave the Fed the ability to lend up to tr 4.5 trillion in various financial markets. Munuchi argued that it was Congress’ intention to end the funding period.
The Fed, in an unusual statement, publicly disagreed with the decision, saying “the Federal Reserve will prioritize that the full suite of emergency facilities established during the coronavirus epidemic will play a key role as a backstop for our still stressful and weak economy.”
But those familiar with the decision say that under the new agreement with the Fed, the new Treasury Secretary of the Mutin or Biden administration may decide to revive emergency lending programs. The current amount of about અ 25 billion from the Treasury will remain in the Care Act fund from the Fed. In addition, the Treasury holds about 50 50 billion in the Exchange Stabilization Fund. Using a 10 to 1 leverage – which it uses for emergency programs – the Fed will have about 7 750 billion in lending power in backstop markets in the event of a disruption. Congressional approval will not be required. However, there will have to be a new agreement between the Treasury Secretary and the Federal Reserve Governors.
The Fed, so far, has borrowed about 25 25 billion from shuttered programs, making લર 750 billion fairly huge in terms.
That’s not the best arrangement from the Fed’s point of view, as some new shocks are likely to hit the financial system to restart programs. The Fed hoped to keep the programs in place and avoid shocks. Will be there if money is needed.
Meanwhile, the return of unused 42 9,429 billion from the Fed to the General Fund makes a pot of money already funded that Congress may decide to use the funds for extended unemployment benefits or additional loans or grants to small businesses. This is in addition to the 5 135 billion in unused funds previously funded by the Paycheck Protection Program. The new relief package may also include new money allocated by Congress, but a large part of it has already been funded.
The biggest losers seem to be the mid-sized businesses that have just started borrowing into the Fed’s main street lending facility. The conditions for the facility were recently amended to allow for loans as low as Rs 100,000. It will probably come close to new lending in a few weeks and can only be relaxed by the agreement between the Fed and the Treasury.
U.S. The Chamber of Commerce criticized Manuchin for a very good reason. It says in a statement, “The surprise termination of the Federal Reserve’s emergency liquidity programs, including the main street lending program, joins the hands of the incoming administration unnecessarily and unnecessarily, closing the door to the most important liquidity options for businesses at the moment.” . “
Munuchi expanded the programs to three 0-day programs that do not use KIRS Act funds, including facilities to back up commercial paper and money markets.
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