On Tuesday, Treasury Secretary Steven T. Mnuchin and Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System testified before the Committee on Banking, Housing and Urban Affairs on the current state of the CARES Act.
"We have worked closely with the Small Business Administration on the Paycheck Protection Program (PPP) to ensure the processing of more than 4.2 million loans for over $530 billion to keep tens of millions of hardworking Americans on the payroll," Mnuchin said in his testimony. "We are proud that nearly 400 Community Development Financial Institutions and Minority Depository Institutions, and many more small and non-bank lenders, are participating in this program."
In Powell's testimony, he discussed how the Federal Open Market Committee undertook purchases of Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning.
"While the primary purpose of these open market operations is to preserve smooth market functioning and effective policy transmission, the purchases will also foster more accommodative financial conditions," Powell said.
As Powell notes, unlike in 2008, banks entered the current crisis with sufficient liquidity. As a result, they have been well positioned to cushion the financial shocks we are seeing. In contrast to the 2008 crisis when banks pulled back from lending and amplified the economic shock, in this instance they have greatly expanded loans to customers.
Additionally, according to Powell, the Federal Reserve is preparing to launch the Main Street Lending Program, which is designed to provide loans to small and medium-sized businesses that were in good financial standing before the pandemic.
"Importantly, with these and other facilities that the Federal Reserve has not employed before, public input has been crucial in their development," said Powell. "For example, in response to comments received, we lowered the minimum loan size and raised the maximum loan size across the three lending facilities within the program; in addition, we expanded the size of firms allowed to borrow under the program to companies with up to 15,000 employees. These changes should help the program meet the needs of a wider range of employers that may need bridge financing to support their operations and economic recovery. "