Senate Republican Banking Committee Chairman Mike Crapo (R-Idaho) says the stimulus package that will help stem the economic impact of the coronavirus needs to dramatically larger funds to help distressed industries such as U.S. airlines that have been hit particularly hard by the pandemic.
A Senate Republican plan unveiled Thursday would provide $50 billion in loans to passenger airlines, $8 billion to cargo air carriers and $150 billion to other distressed industries, but GOP lawmakers now say twice that amount needs to be provided to rescue ailing corporations.
However, Crapo said Saturday that there needs to be a $300 billion to $500 billion appropriation in the stimulus package to turbocharge the Federal Reserve’s ability to maintain liquidity in the financial markets, a proposal that would substantially increase the size of the package overall.
He is working closely with Sen. Pat Toomey (R-Pa.), a member of the Senate Finance Committee, to boost the Fed’s ability to inject liquidity into the economy under Section 13(3) of the Federal Reserve Act by granting lines of credit to distressed industries.
“I personally believe it should be up in the neighborhood of three, four, five hundred billion dollars. Because remember this is leveraged money and you will get multiples of that into the economy in ways that will provide significant strength across all sectors of the economy,” Crapo told reporters Saturday afternoon.
Crapo, Toomey and Mnuchin met Saturday evening to discuss the details of the proposal.
The funding boost would be a major boon to airlines, hotel chains and energy companies that have seen their stocks plummet in recent days and could face difficulty covering business expenses.
Under their proposal, the congressional appropriation of between $300 and $500 billion would allow the Fed to distribute more money in loans to stabilize the financial markets by covering potential losses.
A number of Senate Republicans have stated staunch opposition to providing direct grants to hobbled industries.
The number is also substantially more than the $208 billion Republicans proposed on Thursday to the Treasury Secretary to provide collateralized loans through the Exchange Stabilization Fund.
“The Emergency Stabilization Fund, which we would be funding — money from that is transferred to the Fed to cover the potential loss portion of whatever facility would be there, just like [how] in a bank they have a capital buffer,” Crapo explained.
Under the proposal, Congress would appropriate hundreds of billions of dollars to the Treasury Department to provide a bigger capital buffer for the Fed to extend loans to distressed industries, such as U.S. airlines, hotel and restaurant chains, and energy companies.
The Exchange Stabilization Fund is a joint program between the Treasury Department and the Fed that was traditionally used to stabilize the exchange value of the dollar. It was transformed during the 2008-2009 financial crisis to stabilize the financial markets.
The Treasury Department started asking lawmakers earlier this month to use the Exchange Stabilization Fund to stabilize money market accounts.
The Fed announced last week that it was creating a new program with $10 billion from the Treasury Department to cover losses to insure short-term corporate loans, unsecured short-term debt instruments known as “commercial paper.”
“They did it last week with commercial paper. So they can do this and get a significant boost of leverage into the marketplace. The cost is the money that we will appropriate to the exchange stabilization fund, which is the fund that treasury then uses to provide its portion of the risk protection to the Fed in an agreement with the Fed under 13(3),” Crapo said, referring to a section of the Federal Reserve Act.
Toomey declined to discuss the proposal after GOP colleagues discussed it at lunch Saturday but other Republicans expressed support for it.
“I’m actually encouraged certainly by what Sen. Toomey and Sen. Crapo are working on in terms of that overall facility, generalized for the economy, because we need to provide the liquidity [under] the 13(3) authority,” Sen. Ron Johnson (R-Wis.), said after the lunch.
“We will appropriate and authorize a large amount of money to give the markets the confidence [that distressed companies] will have the liquidity to carry on,” Johnson added.
“That’s the main point here. We need to make sure that our economy is going to be able to recover as quickly as possible and so I, from my standpoint — that’s the most important part of this package,” he said.
Johnson said the appropriation should be “as big as it needs to be.”