WASHINGTON — A top Federal Reserve official on Friday defended the central bank's efforts to launch a Main Street lending program and said the small number of loans approved so far would likely expand by a significant amount in coming months, especially if the pandemic worsens.
While the Fed reported this week that the program has only made eight loans so far totaling $76.9 million, Eric Rosengren, president of the Federal Reserve's regional bank in Boston, told a congressional oversight panel on Friday that more up to date information showed that 54 loans were being considered totaling a potential $530 million.
Still, even the larger figures fall far short of the up to $600 billion the Fed has said it is prepared to make available to cash-strapped mid-size companies.
Members of the Congressional Oversight Commission pressed Rosengren, who is in charge of the Main Street program which is being operated by the Boston Fed, to explain why it has taken so long to make the program operational and why so few businesses have applied for assistance.
"While all of this money has been sitting on the sidelines ... millions of Americans have lost their jobs," said Bharat Ramamurti, a commission member and former aide to Sen. Elizabeth Warren. "By any measure, the Main Street program has been a failure."
Rosengren said that the Fed lending, which is done through buying 95% of a bank loan to a particular business, is much more complex than the Fed's usual support which involves buying securities in open trading in the bond market.
"It takes some time for the banks and the borrowers to get familiar with the program," Rosengren said, noting that the program had undergone a number of modifications based on public comments with the aim of making it more attractive to borrowers.
Rep. French Hill, R-Arkansas and also a commission member, said he was concerned about the reluctance of many banks to participate and wondered if the program terms should allow more of a focus on the assets a potential borrower as opposed to the revenue stream of the business.
Rosengren said it was already risky to be making loans in the "middle of a pandemic" and he said if the pandemic flares up again and the economy doesn't do well, then significant losses could occur.
The Treasury Department is providing a backstop of $75 billion to cover initial losses in the program. Banks make the actual loans but the Fed will buy 95% of the loan from the bank to minimize the risks to banks.
Ramamurti questioned Rosengren about reports that the modifications that had been made included changes that the Trump administration had sought to help the oil and gas industry including an increase in the maximum loan amount.
Rosengren said the internal discussions on changes to the program did not involve specific industries but rather changes that would improve the overall functioning of the program. "This is a broad-based program and it has been a broad-based program from the start," he said.
Rep. Donna Shalala, D-Fla., questioned why the minimum loan amount was set at $250,000, suggesting that was too high and that a minimum amount of $50,000 might be more appropriate.
Rosengren explained that the widely popular Paycheck Protection Program had been designed to help small businesses by providing loans that would turn into grants if the businesses met requirements for keeping workers on the payroll. He said the Main Street program was aimed at mid-size businesses, those defined as having fewer than 15,000 employees or less than $5 billion in annual revenue.
The size of the loans from the Main Street program has been set at $250,000 to $300 million.
According to the first batch of data on the program released Thursday, the program had provided just eight loans totaling $76.9 million since the program began on July 6 with the largest amount a $50 million loan which went to a Mount Pocono, Pennsylvania, casino operator.
The Fed has said it plans to release more data in coming days that will show a pickup in loan activity.