Fed’s Main Street Loans May Be Missing Core Businesses – Investigation

WASHINGTON (Reuters). by it to justify a loan.

In crafting one of its fundamental responses to the coronavirus recession, Fed officials said they wanted the Main Street program to help companies that were creditworthy before the pandemic find a financial bridge to better times.

But 44 of 86 top bank loan officers in a Fed survey released Tuesday said they had rejected some Main Street loans for companies that were “creditworthy before the COVID-19 crisis, but too badly affected to stay.” viable and therefore unable to repay the loan. “

The response indicates the kind of economic damage that programs like Main Street were meant to limit. It also highlights calls for the Fed and the US Treasury Department to be prepared to take more risks to support businesses that may ultimately fail.

The survey, offering the Fed’s first glimpse of how the Main Street program is playing out among banks, suggests that, as it stands, use of the program may well remain limited.

The results indicated that if banks expect demand for business loans to increase or hold over the next few months, there is no clear indication that the so far limited use of the Fed’s program will change. a lot in response.

In contrast, nearly three-quarters of respondents said they had not made any loans on Main Street or were not enrolled in the program. For most of those who had made loans, the Fed’s Main Street program represented less than 2.5% of their total commercial and industrial loans.

Lenders cited various constraints in using the program, including the Fed’s cash flow requirements and repayment terms that excluded some potential borrowers, and the ability to simply make attractive loans themselves without getting involved. with the central bank.

“Respondents expected an increase in applications for C&I loans over the next three months,” from companies in the size category eligible for the Fed’s Main Street program, which is open to those who do not. no more than 15,000 employees or $ 5 billion in revenue. “However, only a small part of banks expect their willingness to expand (main street) lending to increase over the same period,” the report notes.

The Main Street program is one of the most prestigious of the Fed’s many programs related to the pandemic.

But adoption has been low. Only about $ 2 billion of a potential $ 600 billion in loans have been approved by the Fed so far. While Fed officials have called it evidence that the private credit system is working without Fed support, it has also led to calls for the Fed to ease loan terms, or even reallocate some of the funds to other programs.