“This program is designed for a company that had a short-term credit crunch that was in good shape before the crisis and that, following the pandemic, could be a viable business,” said Eric Rosengren, chairman of the Boston Federal Reserve Bank, said at Friday’s hearing.
Mr Rosengren’s central banking department is running the initiative. He said that although about $ 100 million in loans had been settled since Tuesday, the number had increased to $ 189 million by Thursday evening and that more than $ 600 million in total was somewhere in the process.
“We’ve been seeing a major pickup lately,” Mr Rosengren said.
From the beginning, the program ran into problems. Both Republican and Democratic lawmakers have repeatedly raised concerns about how Main Street was designed, making sure it would not get money in the hands of businesses that need it.
Loans must be for a minimum of $ 250,000 and cannot go to highly indebted companies. The Fed does not make the loans itself – banks do it. The problem is that banks are reluctant to get involved.
The way Main Street works, the Fed agrees to buy 95 percent of every loan that banks generate through the program. This means that banks hold some exposure to loans that can go bad, and yet only get a small chunk of loans that can prove more profitable, plus fees. That approach has led to questions from many lawmakers, not just those of the oversight committee.
“Many banks do not seem interested in the program because they either want to keep more than 5 percent of a profitable loan, or they have no interest in at least retaining an interest in a useless loan,” a group of four Republicans senators, led by Georgia’s Kelly Loeffler, wrote in a letter on Tuesday to Fed Chairman Jerome H. Powell and Treasury Secretary Steven Mnuchin.
The senators recommended reducing the minimum loan size and increasing the debt-to-profit ratio for lenders. They also want the Fed and the Treasury to eliminate the credit tax that banks have to keep, or promise that taxpayers will take the first losses on bad loans instead of sharing those losses equally with banks.
