The “Main Street Lending” (MSL) program has attracted involvement from financial institutions representing more than half of all banking assets – but fewer than 600 banks total – and has so far issued loans amounting to about $2 billion, the chair of the Federal Reserve said Tuesday.
In testimony before the House Financial Services Committee, Fed Chair Jerome H. (“Jay”) Powell said the MSL program – designed to facilitate the flow of credit to small and medium-sized businesses – is intended for businesses on a sound footing before the COVID-19 pandemic and that have good longer-term prospects post-pandemic, but have cash flow problems now and are not able to get credit on reasonable terms as a result.
“Main Street loans may not be the right solution for some businesses, in part because the CARES Act states clearly that these loans cannot be forgiven,” Powell acknowledged, referring to the Coronavirus Aid, Relief, and Economic Security Act, enacted in March to counter the financial impact of the coronavirus crisis. “Our credit facilities have improved lending conditions broadly, including for potential Main Street borrowers. The evidence suggests that most creditworthy small and medium-sized businesses can currently get loans from private-sector financial institutions.”
Powell asserted to the committee that the Fed’s actions since the onset of the pandemic (including setting an interest-rate policy of near-zero rates, increasing asset holdings, and standing up 13 emergency lending facilities, including the MSL program) “taken together, have helped unlock more than $1 trillion of funding, which, in turn, has helped keep organizations from shuttering, putting them in a better position to keep workers on and to hire them back as the economy continues to recover.”
Along those lines, Powell said the economy has improved since last spring when the coronavirus crisis became apparent. He said household spending has regained about three-fourths of its earlier decline, which he attributed partly to federal stimulus payments and expanded unemployment benefits; that housing has rebounded; and that business fixed investment shows signs of improvement. As for jobs, he said about half of the 22 million payroll jobs lost in March and April have been regained as people return to work.
However, he said, employment and economic activity still lags behind pre-pandemic levels – and the path forward remains highly uncertain. “The downturn has not fallen equally on all Americans; those least able to bear the burden have been the most affected,” he said. “The rise in joblessness has been especially severe for lower-wage workers, for women, and for African-Americans and Hispanics. This reversal of economic fortune has upended many lives and created great uncertainty about the future.”
Powell emphasized that a full economic recovery can only come when the public is confident that health conditions make it safe to reengage in a broad range of activities.
“The path forward will depend on keeping the virus under control, and on policy actions taken at all levels of government,” he said.