The House Committee on Financial Services Subcommittee on National Security, International Development and Monetary Policy considered testimony on lessons learned from emergency lending facilities set up by the Federal Reserve Board ("FRB") during the pandemic. In a memorandum, majority staff explained that the establishment of emergency lending facilities by the FRB - such as the Secondary Market Corporate Credit Facility, the Municipal Liquidity Facility ("MLF") and the Main Street Lending program - improved conditions in credit markets. Staff noted, however, that the facilities tended to support larger corporations over small businesses, were too restrictive with respect to funds for states and cities, and imposed difficult eligibility criteria and loan terms.
The Subcommittee heard testimony from:
- Shawn Wooden, Treasurer of the State of Connecticut, who recommended that the Federal Reserve Board ("FRB") and Treasury improve MLFs by (i) reducing borrowing rates, (ii) removing the requirement for states to certify that they are unable to secure sufficient credit from other banks, (iii) adding flexibility to the requirement that a state guarantee borrowings of local municipalities, (iv) allowing pooled borrowings, (v) extending the MLF credit facility to longer-term obligations, (vi) creating a special purpose vehicle to support longer-term borrowing, (vii) establishing a "permanent emergency MLF program" and (viii) allowing local governments to borrow directly from the MLF;
- Mike Konczal, Director of Macroeconomic Analysis and Progressive Thought at the Roosevelt Institute, who recommended that for future municipal lending facilities, FRB should (i) expand eligibility requirements to reach smaller municipalities and minority communities, and (ii) remove the penalty rate for such programs;
- Christopher M. Russo, Post-Graduate Research Fellow at the Mercatus Center, who testified that (i) 10 of the 16 COVID-19 pandemic-related emergency lending programs crossed "red lines" to go beyond the FRB's role as the lender of last resort and (ii) the scope of the Federal Reserve's "proper role" does not include credit policy, as that threatens its political independence; and
- Claudia Sahm, Senior Fellow at the Jain Family Institute, who recommended the following improvements for an MLF: (i) adopting targeted eligibility for state and local governments; (ii) relying on economic conditions for an eligibility determination; and (iii) establishing administrative systems to avoid a delayed start to the program or mid-way changes to eligibility criteria and loan terms, which was the case during the COVID-19 pandemic.
Primary Sources
- U.S. House Financial Services Committee Hearing: Lending in a Crisis - Reviewing the Federal Reserve's Emergency Lending Powers During the Pandemic and Examining Proposals to Address Future Economic Crises
- U.S. House Financial Services Committee Memorandum: Lending in a Crisis - Reviewing the Federal Reserve's Emergency Lending Powers During the Pandemic and Examining Proposals to Address Future Economic Crises
- Congressional Testimony, Shawn Wooden: Lending in a Crisis - Reviewing the Federal Reserve's Emergency Lending Powers During the Pandemic and Examining Proposals to Address Future Economic Crises
- Congressional Testimony, Mike Konczal: Lending in a Crisis - Reviewing the Federal Reserve's Emergency Lending Powers During the Pandemic and Examining Proposals to Address Future Economic Crises
- Congressional Testimony, June Rhee: Lending in a Crisis - Reviewing the Federal Reserve's Emergency Lending Powers During the Pandemic and Examining Proposals to Address Future Economic Crises
- Congressional Testimony, Christopher M. Russo: Lending in a Crisis - Reviewing the Federal Reserve's Emergency Lending Powers During the Pandemic and Examining Proposals to Address Future Economic Crises
- Congressional Testimony, Claudia Sahm: Lending in a Crisis - Reviewing the Federal Reserve's Emergency Lending Powers During the Pandemic and Examining Proposals to Address Future Economic Crises
- H.R. ____, the "National Investment Authority Act"
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