Report calls risk low in sectors targeted by Fed lending programs set up in response to pandemic

Credit market risks have remained low in sectors targeted by lending programs set up by the Federal Reserve in response to the coronavirus crisis, although some risks remain, and the loans themselves have generally performed well, according to a report issued Monday by the congressional watchdog.

The Government Accountability Office (GAO) in its report stated that “available indicators” suggest that credit market risks in the sectors targeted by lending facilities set up by the Federal Reserve during the height of the impact of the pandemic “have remained low since the facilities ceased extending credit, although some vulnerabilities remain.

“For example, corporate bond issuances are higher than prepandemic levels, and credit spreads (which reflect borrowing costs) generally remain low, indicating corporations have relatively easy access to credit,” the GAO report stated. “However, prime money market funds that purchase mostly short-term corporate securities remain vulnerable, which could make it difficult for businesses to obtain credit or cause the funds to sell assets at lower prices.”

The report added that small businesses’ access to credit has generally remained favorable, and municipalities’ borrowing costs have remained low since the facilities in these sectors stopped extending credit. “While near-term risks in the credit markets supported by the facilities remain manageable, the effects of factors such as rising interest rates and high inflation levels could make these markets vulnerable in the near future,” the report stated.

According to the report, as of Sept. 30, the Main Street Lending Program facilities, which supported loans made to small and mid-sized businesses and nonprofits, held about $11.2 billion in outstanding assets. Of the 1,830 loans made through the program, 1,453 loans remained outstanding as of the end of September 2022, the most recent data available, the report stated.

The report also stated that, since required interest payments began in August 2021, most borrowers have been making them on time. The GAO said its analysis of Federal Reserve Bank of Boston data found that 365 loans (about 20%) were fully repaid as of Sept. 30, and less than 1% had resulted in losses.

Federal Reserve Lending Programs: Risks Remain Low in Related Credit Markets, and Main Street Loans Have Generally Performed Well