Fed Issues New Bank Guidance to Improve Main Street Loan Access--Update
By Nick Timiraos
The Federal Reserve issued new guidance to banks Friday in an
effort to improve access to new business loans through its $600
billion Main Street Lending Program.
The central bank is relying on banks to underwrite loans to
qualified small and midsize businesses under the novel effort to
reach firms that aren't large enough to access corporate funding
markets, which the central bank has also backstopped.
The Fed is trying to encourage banks to make loans that might
not otherwise be made to support businesses through the coronavirus
pandemic. The program has faced limited uptake since the Fed began
purchasing loans in July, with some banks saying they are selling
95% of eligible loans to the Fed because of concerns over how
regulators might treat loans to firms whose revenues have been
significantly harmed by the pandemic.
In response, the central bank said Friday it had agreed with
bank regulators at the Office of the Comptroller of the Currency
and the Federal Deposit Insurance Corporation to clarify that
federal examiners will provide more flexibility in evaluating loans
originated under the Main Street program.
Through Wednesday, banks have extended slightly more than $1.5
billion in loans under the program. The Treasury Department has
provided $75 billion to cover loan losses, which will allows the
Fed to extend up to $600 billion in loans. So far, large national
banks have mostly shied away from using the program.
Unlike the Paycheck Protection Program, which made grants to
eligible small businesses to cover payroll and other expenses, Main
Street loans must be repaid. The loans have five-year terms;
borrowers can delay principal payments for two years and interest
payments for one year.
"Some lenders are concerned about the underwriting
expectations," said Fed Chairman Jerome Powell at a news conference
Wednesday. "What we want to do is make sure that they know that
they should take" into account certain loan features, including
payment deferrals, that could make it easier for certain businesses
to eventually repay, he said.
Mr. Powell said the Fed wants to make sure the program is
"available pretty much to any company that needs it and that can
service a loan."
The Fed hasn't done anything like the Main Street program in
many decades, and the program design, which requires the approval
of the Treasury, has faced complications and delays. The terms of
the program were first announced on April 9 and have been relaxed
twice to include more potential borrowers and flexible
Write to Nick Timiraos at firstname.lastname@example.org
(END) Dow Jones Newswires
September 18, 2020 13:47 ET (17:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.