Powell Says Fed Working on Changes to Main Street Program

Chair Jerome Powell said the Fed will be making some changes to its Main Street Lending Program, which is aimed at helping small- to mid-sized companies and nonprofits that have struggled during the pandemic.

Despite many private businesses struggling economically because of shutdowns or a drop in customers during the pandemic, the fund hasn’t seen a large take-up.

Currently banks that make the loans in the program, and subsequently sell 95% of each loan to the Fed, are applying the same underwriting standards that they would to their regular loans, Powell said. The Fed is working to make sure that banks understand the terms of the program clearly and that it’s meant for borrowers that don’t have access to borrowing under normal terms right now.

“We expect that they will do some underwriting; we also want them to take some risk, obviously because that was the point of it. The question is how do you dial that in? It’s not an easy thing to do,” Powell said in a press conference following the Fed’s September policy meeting on Wednesday. “We’re continuing to work to improve Main Street, to make it available pretty much to any company that needs it and can service a loan.”

Powell said the program has now bought about $2 billion in loans, which still represents just 0.3% of the total capacity of $600 billion.

He added that companies are not citing credit constraints as a top problem right now. The Fed is also constrained, under Section 13(3) of the Federal Reserve Act, to only lending to solvent companies.

“For many borrowers, they’re in a situation where their business is still relatively shut down and they won’t be able to service a loan so they may need more fiscal support,” Powell said.

For more on the Fed’s meeting, see here.

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