Senators press Mnuchin, Powell over scope of coronavirus bailouts

Senators sparred Tuesday over how the Treasury Department and Federal Reserve should spend $500 billion allocated by Congress for coronavirus economic relief efforts, laying out the difficult political balancing act ahead for two of the most powerful U.S. officials.

Members of the Senate Banking Committee pressed Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell on how they plan to use their nearly unilateral authority over billions in taxpayer dollars to support businesses and local governments facing financial peril amid the coronavirus pandemic.

The bipartisan $2.2 trillion coronavirus relief bill signed by President Trump in March gave Powell and Mnuchin broad discretion to offer billions in emergency aid through Fed lending facilities and direct loans to ailing industries. With few limits written into law, senators debated Tuesday — among themselves and with Powell and Mnuchin — over the scale, goals and scope of those ambitious efforts.

Powell and Mnuchin pledged to pump as much relief as far into the U.S. economy as possible, even if it means lending to companies that may not be able to pay them back.

“I know there’s been a lot of questions as to whether the Treasury is willing to take risk. With that, I would say the answer is absolutely yes,” Mnuchin said.

The Coronavirus Aid, Relief and Economic Security (CARES) Act gave the Treasury Department $454 billion meant to offer credit protection to Fed lending facilities and $46 billion for direct loans to airlines, aircraft makers and businesses essential to national security.

The Fed is empowered to issue a potentially limitless amount of emergency loans under its emergency powers so long as they are “adequately secured” to prevent the central bank from losing money. The backstop from Treasury is there to cover loans issued by the Fed from turning into politically unfavorable losses on its balance sheet.

“What we’re doing here with these programs is we’re making loans in times of severe stress, where markets are not working, not providing credit on reasonable terms — the original purpose of central banks,” Powell explained.

The Fed and Treasury faced intense political backlash when bailing out banks and financial firms during the 2007-08 crisis. While those efforts are credited with stabilizing the economy, critics seized on the ample support provided to the very banks who caused the crisis through risky decisions as millions of Americans lost their jobs and homes.

The political challenges facing the Treasury and Fed this time around are focused on how to divvy up billions meant to save teetering firms, and the conditions placed on that aid.

“These are extraordinary times and I hope you will lean into this as much as possible,” said Sen. Mark Warner (D-Va.), who was involved in discussions over how the facilities would function.

Senators across party lines shared varying views on how much risk the Treasury and Fed should take on, how strict to make the terms of their loans, and how far they should go to protect companies from failure. They zeroed in on the Fed’s Main Street Lending Program, which offers loans to businesses of up to 15,000 employees or annual revenue not more than $5 billion. 

Lending with few strings attached means some businesses who receive support may still fold or be forced to layoff workers, creating political headwinds for the program. But imposing tight conditions for loan recipients may limit the reach and impact of the emergency facilities.

Sen. Elizabeth Warren (D-Mass.) pressed Mnuchin to obligate any company receiving support from a facility backed with Treasury money to pledge that it would not lay off any employees after obtaining aid. 

Mnuchin replied that the funds came with firm restrictions for companies receiving the funds, including limits on executive compensation and bans on stock dividends and buybacks, as well as a promise for businesses to make their “best efforts” to support jobs. 

Even so, he declined to write a ban on layoffs into the terms of those loans, prompting Warren to accuse him of helping his “friends” on Wall Street while leaving regular people in the dust.

Republicans and Democrats also expressed concerns with smaller companies potentially getting left out of the program based on the substantial size range and difficulties they may face in navigating the program.

“I want some kind of assurance … that these kind of companies that are hugely important to the economy can receive some assistance with the facilities at Treasury and the Fed,” said Sen. Jerry Moran (R-Kansas).