[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE TREASURY
DEPARTMENT'S AND THE FEDERAL
RESERVE'S PANDEMIC RESPONSE
=======================================================================
HYBRID HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JUNE 30, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-99
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
42-943 PDF WASHINGTON : 2021
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California ANN WAGNER, Missouri
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut SCOTT TIPTON, Colorado
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio FRENCH HILL, Arkansas
DENNY HECK, Washington TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
RASHIDA TLAIB, Michigan DAVID KUSTOFF, Tennessee
KATIE PORTER, California TREY HOLLINGSWORTH, Indiana
CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois JOHN ROSE, Tennessee
AYANNA PRESSLEY, Massachusetts BRYAN STEIL, Wisconsin
BEN McADAMS, Utah LANCE GOODEN, Texas
ALEXANDRIA OCASIO-CORTEZ, New York DENVER RIGGLEMAN, Virginia
JENNIFER WEXTON, Virginia WILLIAM TIMMONS, South Carolina
STEPHEN F. LYNCH, Massachusetts VAN TAYLOR, Texas
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
June 30, 2020................................................ 1
Appendix:
June 30, 2020................................................ 37
WITNESSES
Tuesday, June 30, 2020
Mnuchin, Hon. Steven T., Secretary, U.S. Department of the
Treasury....................................................... 6
Powell, Hon. Jerome H., Chair, Board of Governors of the Federal
Reserve System................................................. 7
APPENDIX
Prepared statements:
Mnuchin, Hon. Steven T....................................... 38
Powell, Hon. Jerome H........................................ 41
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written statement of the Credit Union National Association... 52
Written statement of the National Association of Federally-
Insured Credit Unions...................................... 60
McHenry, Hon. Patrick:
Written statement of the National Association of Federally-
Insured Credit Unions...................................... 60
Mnuchin, Hon. Steven T.:
Written responses to questions for the record submitted by
Chairwoman Waters.......................................... 63
Written responses to questions for the record submitted by
Representative Heck........................................ 75
Written responses to questions for the record submitted by
Representative Himes....................................... 76
Written responses to questions for the record submitted by
Representative Gonzalez.................................... 76
Written responses to questions for the record submitted by
Representative Lawson...................................... 77
Written responses to questions for the record submitted by
Representative Steil....................................... 78
Written responses to questions for the record submitted by
Representative Tlaib....................................... 78
Written responses to questions for the record submitted by
Representative Vargas...................................... 80
Powell, Hon. Jerome H.:
Written responses to questions for the record submitted by
Chairwoman Waters.......................................... 82
Written responses to questions for the record submitted by
Representative Beatty...................................... 109
Written responses to questions for the record submitted by
Representative Heck........................................ 113
Written responses to questions for the record submitted by
Representative Kustoff..................................... 115
Written responses to questions for the record submitted by
Representative Lawson...................................... 119
Written responses to questions for the record submitted by
Representative Mooney...................................... 122
Written responses to questions for the record submitted by
Representative Tlaib....................................... 124
Written responses to questions for the record submitted by
Representative Vargas...................................... 129
OVERSIGHT OF THE TREASURY
DEPARTMENT'S AND THE FEDERAL
RESERVE'S PANDEMIC RESPONSE
----------
Tuesday, June 30, 2020
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 12:45 p.m., in
CVC-200, Congressional Auditorium, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney,
Velazquez, Sherman, Meeks, Clay, Scott, Green, Cleaver,
Perlmutter, Himes, Foster, Beatty, Heck, Vargas, Gottheimer,
Gonzalez of Texas, Lawson, San Nicolas, Tlaib, Porter, Axne,
Casten, McAdams, Ocasio-Cortez, Wexton, Gabbard, Adams, Dean,
Garcia of Illinois, Garcia of Texas; McHenry, Wagner, Lucas,
Posey, Luetkemeyer, Huizenga, Stivers, Barr, Tipton, Williams,
Hill, Zeldin, Loudermilk, Mooney, Davidson, Budd, Kustoff,
Hollingsworth, Gonzalez of Ohio, Rose, Steil, Gooden,
Riggleman, Timmons, and Taylor.
Chairwoman Waters. The Financial Services Committee will
come to order. First, I want to thank Secretary Mnuchin and
Chair Powell for your patience while we wrapped up our votes. I
appreciate that there may be a vote called during the hearing
as well; however, I plan to continue the hearing if votes are
called. I am told by my staff that both of you have agreed to
be here for 2 hours from the start of the hearing, and I thank
you.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
I want to welcome the Members and our distinguished
witnesses to the first Full Committee hybrid hearing being
conducted by the Committee on Financial Services. As Congress
breaks new ground with these remote hearings, I want to remind
Members of a few matters, including some required by the
regulations accompanying H. Res. 965, which established the
framework for remote and hybrid committee proceedings.
First, I would ask all Members on the Webex platform to
keep themselves muted when they are not being recognized. This
will minimize disturbances while Members are asking questions
of our witnesses. Members on the Webex platform are responsible
for muting and unmuting themselves. The staff have been
instructed not to mute Members except when they are not not
being recognized by the Chair, and there is inadvertent
background noise. Members on the Webex platform are reminded
they may only attend one remote hearing at a time, so if you
are participating today, please remain with us during the
hearing. Members should try to avoid coming in and out of the
hearing, particularly during the question period. If, during
the hearing, Members wish to be recognized, the Chair
recommends that Members identify themselves by name so as to
facilitate the Chair's recognition.
I would also ask that Members be patient as the Chair
proceeds, given the nature of the online platform the committee
is using. In addition, the Chair informs the Members
participating in person that in enforcing order and decorum in
the hearing room, the Chair has a duty to protect the safety of
the Members. The attending physician provided the following
guidance: ``For U.S. House of Representatives meetings in a
limited enclosed space, such as a committee hearing room, for
greater than 15 minutes, face coverings are required.''
Accordingly, the Chair will treat wearing masks as a matter
of order and decorum, and all Members should wear masks. The
Chair has a strong preference for Members to continue to wear a
mask, even while being recognized by the Chair. Members who do
not wish to wear masks may participate virtually through the
Webex platform.
Before proceeding to the hearing, I have one committee
business matter. Without objection, two resolutions,
distributed in advance to all Members' offices establishing
committee task forces for the remainder of 2020, are approved.
Today's hearing is entitled, ``Oversight of the Treasury
Department's and the Federal Reserve's Pandemic Response.''
This hearing is the committee's first quarterly hearing
required by the Coronavirus Aid, Relief, and Economic Security
(CARES) Act for oversight of the various facilities and
programs under the Act.
I would like to inform Members that our witnesses have a
hard stop today at 2:00.
I now recognize myself for 4 minutes to give an opening
statement.
Secretary Mnuchin, Chair Powell, welcome back. The pandemic
continues to have a terrible impact. More than 126,000 people
have lost their lives in the United States, and, this past
Sunday, there were 40,000 new cases of COVID-19, the highest
number of daily cases. And the unemployment rate in May was
13.3 percent, nearly 4 times higher than it was last May. All
of the job gains of the past decade have been wiped out.
Communities of color have been affected disproportionately
both by the virus and its economic impact. The Centers for
Disease Control reports that Jewish, Black, and Latinx
Americans are 4 to 5 times more likely than Whites to be
hospitalized for COVID-19, and half of all Black adults are not
working. During the 2008 foreclosure crisis, we saw a similarly
disproportionate impact on communities of color. This was
followed by an unequal recovery where White households gained
the wealth they lost, and Black and Brown households are still
trying to catch up. We cannot endure another unequal crisis or
unequal recovery. Your agencies and Congress must do all that
we can to ensure that history does not repeat itself.
I want to thank both of you for your efforts thus far, and
for the ways that you have worked with me and the members of
this committee, including taking my many calls to strengthen
the implementation of the CARES Act.
Secretary Mnuchin, you have used your authority to provide
Community Development Financial Institutions (CDFIs) and
Minority Depository Institutions (MDIs) greater access to the
Paycheck Protection Program (PPP), including by setting aside
$10 billion for them to lend to ensure that more loans go to
small, minority-owned businesses.
Chairman Powell, you have worked with us to reduce the
minimum loan size at the Main Street Lending Facility from $1
million to $250,000, and to extend the length of the loans. You
have also expanded eligibility of the Municipal Liquidity
Facility to increase access to a greater number of cities and
towns.
The CARES Act has provided important relief to struggling
families and communities, but as the pandemic has strengthened,
so must our efforts.
I now recognize the ranking member of the committee, the
gentleman from North Carolina, Mr. McHenry, for 4 minutes.
Mr. McHenry. Thank you. Thank you all for being before the
committee and behind the salad guards that we have arranged for
you. It's good to see your smiling faces behind your masks, but
I am grateful that we are able to assemble. This is certainly a
large undertaking for the second-largest committee in Congress,
and I do want to commend the chairwoman for these efforts so
that we could actually have this hybrid hearing. I think it
shows that Congress and our government are still working, even
if we have to do so using technology. Thank you all for your
response and your active response since this crisis began.
I want to say, first of all, I believe that the Fed's and
Treasury's decisive actions prevented the worst of the economic
catastrophe, but there is still much work to be done. It is
important to remember this is not a crisis that was caused by
irresponsible choices by any specific industry or corporation.
What we have seen is the impact of a voluntary shutdown of our
economy in an effort to save lives. The bipartisan CARES Act
directed both the Treasury Department and the Federal Reserve
to stand up responsible programs that would have been
unthinkable even months ago, and to do so quickly, and you have
done so rather quickly.
Now that many of these programs are up and running, we must
be forward-thinking to seek solutions to return us to the
roaring economy that we experienced right before the global
health crisis. That means we need to understand the nature of
what we have done and what we need to do going forward. We know
the pandemic has touched nearly every aspect of our economy and
every family. Facilities discussed today need to be similarly
far-reaching and responsive to economic conditions, not
political ones. And I know there are a number of programs that
have been desired by policymakers to be company-specific or
something like that, but that is not the appropriate response
nor commensurate with the law.
Moreover, Members are going to have a lot of questions
about fiscal policy, which I think Secretary Mnuchin is best
fitted to, and monetary policy, which Chairman Powell is best
suited to. And I think the understanding of that is important
for us as policymakers to experience at the beginning of this
hearing rather than to hear you defer to one another. Our role
in Congress is to assess the effectiveness of existing
programs, determine the goals for additional relief programs,
and identify the appropriate entity to provide that relief.
That is our role.
Of course, we need to access the key programmatic data, and
so I want to commend Secretary Mnuchin for coming forward with
this type of oversight material in a massive, unprecedented
way, with the type of low-level data that we requested in
Congress, and to provide that in a transparent way. The
thousands of pages of documents that you and your team have
assembled for just this committee alone is staggering in such a
short period of time. I hope my colleagues will use this data
appropriately so that we can assess these programs and make
sure they are working.
I do want to commend you, Secretary Mnuchin, for the
delivery of the PPP program so effectively and so quickly. It
wasn't perfect, of course, but it saved millions of jobs. And
Chairman Powell, I want to commend you. You have made your
words good in terms of action, and that builds confidence in
the institution of the Federal Reserve, that your words
actually are as good as action by the Federal Reserve. So,
thank you for following through on your word and your
commitment. I think there is positive news in terms of the
assessment for this initial response, and I want to thank you
for being here at the first quarterly oversight hearing under
the CARES Act.
Madam Chairwoman, on a personal note, I would like to
welcome back our friend and colleague, the ranking member of
the Oversight Subcommittee, Andy Barr, from his family concerns
he has been attending to. So, thank you, Andy. We welcome you
back.
I yield back.
Chairwoman Waters. Thank you very much. I now recognize the
gentleman from Texas, Mr. Green, who is also the Chair of our
Subcommittee on Oversight and Investigations, for 1 minute.
Mr. Green. Thank you, Madam Chairwoman. And I thank
everyone. It is an honor to serve under your leadership, Madam
Chairwoman.
The 2019 Home Mortgage Disclosure Act (HMDA) data were
released last week and demonstrate that unequal access to
credit on the basis of race and ethnicity remains the norm in
America today. This is something that we can do something
about, but there is a problem. Many of the people who have the
authority and who are in positions to make a difference refuse
to even acknowledge that the problem exists. I have the
evidence. I have pictures from prior hearings. The one to my
right asks, ``Do you believe that discrimination in lending
exists?'' One person has his hand up. He is with the NAACP. He
is African American. The four Anglo persons on this panel
refused to raise their hands. These are the problems that we
have to contend with. I yield back the balance of my time.
Chairwoman Waters. Thank you, Mr. Green. I now recognize
the subcommittee's ranking member, Mr. Barr, for 1 minute.
Mr. Barr. Madam Chairwoman, before I deliver my opening
statement, I rise to ask a question of personal privilege.
Chairwoman Waters. Without objection, certainly.
Mr. Barr. Thank you, Madam Chairwoman. As you know, 2 weeks
ago, I lost my wife unexpectedly to a heart condition, and I
want to express my sincere appreciation to you, Madam
Chairwoman, Ranking Member McHenry, and to all of my colleagues
on this committee on both sides of the aisle for the outpouring
of prayers and expressions of sympathy for Carol and her
greatest legacy, our two daughters. Your friendship and
kindness during this difficult time for me and my family means
so much, and I thank all of you.
Chairwoman Waters. Thank you very much, Mr. Barr, and now
you may take 1 minute if you would like--
Mr. Barr. Thank you.
Chairwoman Waters. --on the subject that is before us
today.
Mr. Barr. Thank you. And thank you, Secretary Mnuchin and
Chairman Powell, for appearing before the committee today and
for your continued efforts to ameliorate the effects of the
government-imposed shutdown of the economy arising out of the
pandemic. Congress acted decisively through the passage of the
CARES Act and other legislation to mitigate the damage to the
economy, and keep people employed and businesses strong to
ensure that the economy can emerge on the other side in a
position for long-term growth. Congress directed the Fed and
Treasury to play a critical role in the response, and
throughout, you both have been decisive and aggressive in using
the tools at your disposal and been incredibly responsive to
congressional concerns. You have made appropriate adjustments,
each of you personally, and there are elements of Treasury's
and the Fed's responses to the pandemic that could still be
improved or adjusted to honor congressional intent. I look
forward to talking to you about those today, including and
especially in commercial real estate. I look forward to
discussing that today. And, again, thank you, both of you, for
being here today. I yield back.
Chairwoman Waters. Thank you, Mr. Barr. I want to welcome
today's witnesses. First, we have Steven T. Mnuchin, Secretary
of the Treasury. He has served in this current position since
2017. Mr. Mnuchin has testified before the committee on
previous occasions, and I do not believe he needs any further
introduction.
Next, we have Jerome Powell, Chair of the Board of
Governors of the Federal Reserve System. Mr. Powell has served
on the Board of Governors since 2012, and as its Chair since
2017. Mr. Powell has testified before the committee on previous
occasions, and I do not believe he needs any further
introduction.
Each of you will have 5 minutes to summarize your
testimony. When you have 1 minute remaining, a yellow light
will appear. At that time, I would ask you to wrap up your
testimony so we can be respectful of the committee members'
time. And, without objection, your written statements will be
made a part of the record.
Secretary Mnuchin, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF THE HONORABLE STEVEN T. MNUCHIN, SECRETARY, U.S.
DEPARTMENT OF THE TREASURY
Secretary Mnuchin. Thank you very much, and, Mr. Barr, let
me express my condolences for your loss.
Chairwoman Waters, Ranking Member McHenry, and members of
the committee, I am pleased to join you today to discuss how
the Treasury Department and the Federal Reserve are working
together to provide liquidity to credit markets, businesses,
and households, as well as State and municipal governments. We
remain committed to making sure that every American gets back
to work as quickly as possible.
America's economy continues to recover from the challenges
posed by the COVID-19 pandemic. The jobs report for the month
of May vastly exceeded expectations with a record gain of 2\1/
2\ million jobs after experts had predicted a loss of nearly 8
million jobs. While the unemployment rate is still historically
high, we are seeing additional signs that conditions will
improve significantly in the 3rd and 4th quarters of this year.
The ``Blue Chip Report'' is forecasting that our GDP will
grow by 17 percent annualized in the 3rd quarter and by 9
percent in the 4th quarter. The U.S. Chamber of Commerce
reported this month that 79 percent of small businesses are at
least partially open, and half of the remaining businesses are
opening very soon. Retail sales rose in May by 18 percent, more
than double the expectation. Investors and businesses have
historically high cash positions, the highest level since 1992,
indicating that private capital is ready to return as
communities reopen.
We are in a strong position to recover because the
Administration worked with Congress on a bipartisan basis to
pass legislation and provide liquidity to markets in record
time. In particular, the PPP is keeping tens of millions of
employees connected to their jobs. Economic impact payments are
also helping millions of families and workers through these
challenging months. We are monitoring economic conditions
closely. Certain industries, such as construction, are
recovering quickly, while others, such as retail and travel,
are facing longer impacts and may require additional relief. We
look forward to continued conversations with you to address
these critical economic issues.
Treasury has been hard at work implementing the CARES Act
Program. The PPP: we have approved over 4.8 million small
business loans for $519 billion. Economic impact payments: we
distributed nearly 160 payments in record time. Programs to
support aviation and other eligible businesses: we have
approved and dispersed over $27 billion to over 500 airlines
and other aviation businesses, preserving hundreds of thousands
of jobs. We are in the process of documenting loans to business
and critical national security for approximately $25 billion.
The Coronavirus Relief Fund: from this fund, we have
distributed $150 billion across States and local governments
and additional money to tribal governments.
The CARES Act granted Treasury the authority to provide
$454 billion to support Federal Reserve Lending Facilities
under Section 13.3. Since March 17th, using funds available, I
have approved a number of Federal Reserve programs: the
Commercial Paper Program; the Primary Dealer Program; the Money
Market Mutual Program; the TALF; the Primary Market Corporate
Credit Facility; the Secondary Facility; the Main Street
Facility; the Municipal Facility; and the PPP Lending Facility.
We have committed approximately $200 billion to support these.
The announcements of these programs have helped unlock markets
and promote much-needed access to liquidity. We have over $250
billion to create or expand programs as needed.
While we are beginning to have conversations about
supplemental relief legislation, we look forward to working
with Congress on a bipartisan basis in July on any other
further legislation that will be necessary. Treasury has
already been entrusted with a tremendous amount of funding to
inject into the economy. We are closely monitoring these
results and seeing conditions improve. We would anticipate that
any additional relief would be targeted to certain industries
that have been especially hard hit by the pandemic, with a
focus on jobs and putting all Americans back to work who have
lost their jobs through no fault of their own.
The Treasury Department is implementing the CARES Act with
transparency and accountability. We are providing information
to the government-wide reporting on USAspending and updates to
Congress. We are also cooperating with the congressional
oversight committee, GAO, and others. We are pleased that the
Federal Reserve has announced plans to boost loan information
on its website regarding its facilities. Chair Powell and I
have had very productive initial meetings with four members of
the Oversight Committee, and we look forward to continuing to
work with them. Thank you very much.
[The prepared statement of Secretary Mnuchin can be found
on page 38 of the appendix.]
Chairwoman Waters. Thank you. Chair Powell, you are now
recognized for 5 minutes to present your oral testimony.
STATEMENT OF THE HONORABLE JEROME H. POWELL, CHAIR, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Powell. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, thank you for the opportunity to
testify today to discuss the extraordinary challenges our
nation is facing and the steps we are taking to address them.
We meet as the pandemic continues to cause tremendous
hardship, taking lives and livelihoods both at home and around
the world. This is a global public health crisis, and we remain
grateful to our healthcare professionals for delivering the
most important response, and to our essential workers who help
us meet our daily needs. These dedicated people put themselves
at risk day after day in service to others and to our country.
Beginning in March, the virus and the forceful measures
taken to control its spread induced a sharp decline in economic
activity and a surge in job losses. As the economy reopens,
incoming data are beginning to reflect a resumption of economic
activity. Many businesses are opening their doors, hiring is
picking up, and spending is increasing. The economy has entered
an important new phase and has done so sooner than expected.
While this bounce-back in economic activity is welcome, it
also presents new challenges, notably the need to keep the
virus in check. While recent economic data offers some positive
signs, we are keeping in mind that more than 20 million
Americans have lost their jobs and that the pain has not been
evenly spread. The rise in joblessness has been especially
severe for lower-wage workers, for women, and for African
Americans and Hispanics. This reversal of economic fortune has
caused a level of pain that is hard to capture in words as
lives are upended amid great uncertainty about the future. The
path forward for the economy remains extraordinarily uncertain
and will depend, in large part, on our success in containing
the virus. A full recovery is unlikely to occur until people
are confident that it is safe to engage in a broad range of
activities. The path forward will also depend on policy actions
taken at all levels of government to provide relief and support
the recovery for as long as needed.
The Federal Reserve is strongly committed to using our
tools to do whatever we can for as long as it takes to provide
some relief and stability to ensure that the recovery will be
as strong as possible and to limit lasting damage to the
economy. After lowering the Federal funds rate to essentially
zero, our actions so far fall into four categories: stabilizing
Treasury and agency MBS markets; money market, and liquidity
and funding measures; direct efforts to support the flow of
credit in the economy; and targeted regulatory measures to
support those efforts.
So far, we have created 11 Facilities under Section 13.3 of
the Federal Reserve Act to support liquidity, funding, and the
flow of credit to households and businesses and State and local
governments. Without access to credit, families could be forced
to cut back on necessities or even lose their homes. Businesses
could be forced to downsize or close, resulting in further
losses of jobs and incomes and worsening the downturn.
Our emergency lending facilities have all been undertaken
with the approval of the Treasury Secretary, and many are
supported by funding from the CARES Act. Their status and
effects are discussed in greater length in my written
statement, which I have provided to the committee. The Fed will
continue to use these powers forcefully, proactively, and
aggressively until we are confident that the nation is solidly
on the road to recovery. When the time comes, after the crisis
has passed, we will put these emergency tools back in the
toolbox.
I would stress that these are lending powers, not spending
powers. I will also note that we design our facilities to work
for broad ranges of businesses and municipalities. We do not
target particular firms or industries. Elected officials have
the power to tax and spend and to make decisions about where to
direct such targeted relief. The CARES Act and other
legislation provides direct help to people, businesses, and
communities. This direct support is making a critical
difference, not just in helping families and businesses in a
time of need, but also in limiting long-lasting damage to our
economy.
Public faith in our operations depends on transparency. At
the Fed, we are committed to that transparency, particularly in
deploying our emergency powers. Thank you. I look forward to
answering questions.
[The prepared statement of Chairman Powell can be found on
page 41 of the appendix.]
Chairwoman Waters. Thank you very much, Chairman Powell. I
now recognize myself for 5 minutes for questions.
As I mentioned in my opening, the pandemic is
strengthening, and so, too, must our response. Two weeks ago,
Chair Powell, when I asked you about the need for more
congressional action to protect our communities, you said,
``There are something like 25 million people who are still
dislodged from their job, in full or in part, due to the
pandemic. I would think it would be a concern if Congress were
to pull back from the support that it's providing too
quickly.''
Unfortunately, tomorrow, this is exactly what will happen
if the Senate does not pass the Health and Economic Recovery
Omnibus Emergency Solutions (HEROES) Act. Tomorrow, the PPP
program stops taking new loan applications. The PPP should be
extended immediately so that the remaining $135 billion in
funding can support small businesses. Also happening tomorrow,
millions of families will be unable to pay their rent and
mortgages. In June, one-third of renters couldn't pay rent, 4.2
million homeowners are currently in forbearance because they
are unable to pay their mortgages, and evictions have already
started in many States where local eviction moratoria have
expired. While the moratoria should be extended, it is not
conscionable to simply delay an eviction and foreclosure
crisis. Congress and the Administration must provide assistance
to struggling low-income families to cover their rent and
utility payments.
So, Chairman Powell, millions of families are at risk of
being stripped of their homes. Do you think Congress should
provide financial assistance to ensure that people can stay in
their homes?
Mr. Powell. Thank you, Madam Chairwoman. I try to keep my
fiscal comments at a very high level, and actually that comment
you referred to, was referring to the unemployment insurance
that expires at the end of July. And I think for the specifics
of what you need to be doing, we have the Treasury Secretary
here, and I would defer to the Treasury Secretary on fiscal
matters here.
Chairwoman Waters. Okay. So, you put it off on Mr. Mnuchin.
While you have made some changes to broaden the Municipal
Liquidity Facility, many jurisdictions, like the Territories,
are still locked out. When we last spoke, you mentioned that it
was difficult, but perhaps there was a way that Guam may be
eligible. Did you find a way to take a serious look at that and
determine whether or not something could happen?
Mr. Powell. Yes, we are taking a serious look at that. The
Territories themselves are not investment grade-rated, and they
were not before the pandemic set in, and that is the minimum
standard for access to the Municipal Liquidity Facility. Of
course, businesses in the Territories would be eligible for the
Main Street Facility. Some of the revenue-based facilities that
Guam has are investment grade-rated, but below the minimum, and
we are actually reviewing our credit standards in the Municipal
Liquidity Facility at the moment to determine if there is a way
to adjust the Facility in a way that would make eligible some
creditworthy issuers without violating the spirit or the letter
of Section 13.3.
Chairwoman Waters. Thank you. Secretary Mnuchin, with
critical unemployment support expiring next month, and today
marking the last day that Treasury and the Small Business
Administration's (SBA's) claim that new PPP loans can be
approved, does the Administration support extending these
programs as proposed in the HEROES Act?
Secretary Mnuchin. We do support additional legislation,
and we look forward to working with the House and the Senate on
that. As it relates to the PPP, I have already had
conversations with the Small Business Committee in the Senate
about repurposing that $135 billion, and I think that should be
done, and I look forward to working with both the House and the
Senate so that we can pass legislation by the end of July.
Chairwoman Waters. Thank you very much. The ranking member
of the committee, the gentleman from North Carolina, Mr.
McHenry, is now recognized for 5 minutes.
Mr. McHenry. Thank you. Thank you for your testimony.
Secretary Mnuchin, I think there is wide agreement that your
engagement in the PPP program made things largely better,
right? The Treasury expertise in making sure that SBA could
deliver on this really seminal program of the CARES Act is
proven out because you have 4\1/2\ million small businesses
that have benefited from it. The average loan size is quite
modest in the context for our economy, but the effect is pretty
widescale. So, what would you say regarding the additional
funds that are purposed for PPP? What should be our focus as
policymakers on repurposing that $134 billion? How can we best
do that? Is that the 7(a) Program? Is that an expiry loan
program? How do you see this fitting in, given the actions of
Main Street and other Facilities you stood up through this Act?
Secretary Mnuchin. Thank you, and I appreciate your
comments. I think at the time when we passed the last CARES
Act, the economy was in very difficult shape, and we needed to
get money quickly. And I have said before, programs that took 3
or 4 months were not the focus. I think that there appears to
be bipartisan support in the Senate to repurpose the $130
billion for PPP, and extending it to businesses that are most
hard hit, that have a requirement that their revenues have
dropped significantly, things like restaurants and hotels and
others where it is critical to get people back to work.
Mr. McHenry. Okay. That seems like a reasonable step in the
right direction. Chairman Powell, the reputation you have
garnered this year, in particular, is that your actions have
been predictable, and that you signal what you are going to do
and you follow through on it, transparent in that you lay out
the metrics for action. You, therefore, follow those metrics.
Incredible. One example is that at announcement, you said that
you were going to support corporate bonds, and by saying you
are going to support corporate bonds, the market acted as if
the Fed already had the program up and running, to the point
where once you were up and running, people asked why you
followed through on that program.
Now, I think that is important to note. That transparency,
that guidance, that communication has been effective in this
opening stage in setting up these responses. So along those
lines, the Fed took, what I would call, strong medicine in
terms of action on the stress test to restrict dividends and
buybacks, and in restraints on these large financial
institutions. I would call that quite strong medicine. I think
what we want to understand are the metrics that the Fed is
going to use in order to make these judgments and assessments
in this next phase over the next couple of months for these
large financials?
Mr. Powell. I think you have to start with two major facts
here. One is that the banking system is very strong, and has
been a source of strength. The banks have been taking on a wave
of deposits. They have been engaging in forbearance. They have
been making loans. So, they are a source of strength in this
situation, unlike the last crisis, where they were a source of
weakness. It is also a fact that things are highly uncertain,
and so to preserve that strength, what we have done is we have
stopped all share repurchases and we have stopped increases in
dividends, so we are preserving the level of capital in the
system.
To address the uncertainty, looking forward, we did run
these three sensitivity analyses, and they were really to
assess the overall strength of the system in the face of these
downside cases. We found that the majority of firms were still
adequately capitalized, sufficiently capitalized, in all of
those scenarios. Notwithstanding that, for the first time in
the history of these tests, we said that we are going to ask
the banks to resubmit their capital plans. We are going to
distribute scenarios, and we are going to look at the results
again as we learn more about the path of the crisis. And in
terms of the precise metrics we are going to be looking at, we
will be providing more clarity about that, going forward.
Mr. McHenry. But based off of that uncertainty, you are
asserting as a regulator that you will actively review this to
ensure that we don't have a financial crisis as a result of
this health crisis?
Mr. Powell. Yes, we are going to keep monitoring this. We
are learning so much every quarter, and the path of the economy
is highly uncertain. In our system, dividends are declared
every quarter. We have already stopped the overwhelming
majority of distribution, so we think that is the right place
to be.
Mr. McHenry. Thank you. Thanks for your leadership and
effectiveness, and thank you as well, Secretary Mnuchin, for
your effectiveness in leadership. I yield back.
Chairwoman Waters. Thank you. I now recognize the
gentlewoman from New York, Mrs. Maloney, for 5 minutes.
Mrs. Maloney. Thank you, and welcome. Secretary Mnuchin, I
would like to ask you about a very troubling oversight issue.
As you know, I am the Chair now of the House Oversight and
Reform Committee, and I take these matters very seriously, and
I hope that you do, too.
In the CARES Act, we created the Pandemic Response
Accountability Committee, or PRAC, which is a committee of
independent inspectors general that is charged with overseeing
all of the money spent in the CARES Act, and identifying waste,
fraud, and abuse. Last month, the General Counsel's office in
Treasury issued a legal opinion that questions PRAC's authority
to oversee trillions of dollars of CARES Act spending. To put
it bluntly, this legal analysis is so bad that it borders on
bad faith.
The opinion claims, with no evidence, that Congress did not
intend for the PRAC to have oversight authority over anything
in the first half of the CARES Act, including the PPP program
and any of the Fed's Lending Facilities or the $150 billion in
funding for State and local governments. So I would say,
Secretary Mnuchin, that this interpretation is wrong, that it
is just plain wrong.
Senator Gary Peters and I proposed and authored this
section of the law, the PRAC Act, and I was heavily involved in
negotiating those provisions in the CARES Act, and I am telling
you that Congress' intent was for the PRAC to oversee all of
the spending in the CARES Act, not just one-half of the CARES
Act, but all of it. That was our intent, and that was what the
bill said explicitly. The interpretation from your general
counsel's office is already causing problems because it is
hindering the PRAC's ability to monitor how the States are
spending their CARES Act money.
So now, Secretary Mnuchin, I would say that we have worked
very productively together and in good faith negotiations on
the Beneficial Ownership Bill and other bills before Congress,
so I hope that you will take my concerns about this erroneous
legal opinion seriously, and this is what I would like to ask
today: I would like you to commit to interpreting this section
of the CARES Act as Congress intended, with the PRAC's
oversight authorities applying to all of the CARES Act
spending. I think this is a small step, but a very important
one, that you can take to show that you are serious about the
oversight of the trillions of dollars in the CARES Act.
Secretary Mnuchin. Thank you. I appreciate your comments,
and I assure you we are very much committed to working with the
Oversight Committee on transparency. Now, as it relates to
this, I can assure you it was not bad faith. I am happy to have
our office follow up with you. It has to do with a technical
issue of recipients reporting. As it relates to the issue of
monitoring State spending, I am more than happy to put the PRAC
in touch with our Inspector General, who has primary oversight,
and to make sure that whatever information specifically the
PRAC wants on the States, that we accommodate.
Mrs. Maloney. That is not what I am asking. What I am
asking is, will you commit to interpreting the PRAC's oversight
authorities as applying to all of the CARES Act spending? That
was our intent. I wrote that section of the law. That was what
Congress wanted. There is no problem with the interpretation.
It is very clear and explicit. Will you commit to allowing the
oversight that was in the bill?
Secretary Mnuchin. I appreciate that you wrote that
portion. I would also say I appreciate I had very direct
discussions with people in the Senate about various different
oversight. That is why we agreed to a new oversight committee
with full transparency. We agreed to provide information that
was not required under Section 13.3 so we have full
transparency. And, again, I am happy to follow up with you on
the specific concerns as to which different entities should
receive what information. I think it is important that there is
not bureaucratic overlap. But, again, let me emphasize, if the
PRAC needs certain information, we will try to do what we can
to accommodate it.
Mrs. Maloney. I am very disappointed with that answer, and
I guess we will have to pursue a legislative solution. It was
very clear that the intent of Congress was that PRAC would have
oversight of all of the CARES spending. I yield back. I am out
of time.
Chairwoman Waters. Thank you.
The gentlewoman from Missouri, Mrs. Wagner, is now
recognized for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman, and thank you for
joining us today, Secretary Mnuchin and Chairman Powell. I want
to commend you both at the outset here for your leadership
during this unprecedented time. Both the United States
Department of the Treasury and the Federal Reserve System have
shown their ability to both effectively and rapidly respond to
the economic crisis caused by COVID-19 by providing trillions
of dollars to stabilize our economy.
Chairman Powell and Secretary Mnuchin, lender registration
for the Main Street Lending Program went live on June 15th, I
believe. Do either of you know how many lenders have registered
so far, and do you know the average size of the lenders
participating? If not, when do you think this information might
be made available? I will toss it to either of you?
Mr. Powell. Sure. In the range of 300 banks, and it may be
higher than that--that number is a few days old--have entered
the registration process. It takes a few days, so I can't tell
you exactly how many, but that is how many will come out of the
pipeline.
Mrs. Wagner. Average size of lenders?
Mr. Powell. I don't know. The size ranges from the large to
the very small, and the very small are particularly well-
represented, but it does range across the full spectrum.
Mrs. Wagner. And you will be providing this information to
us on a regular basis?
Mr. Powell. We are working with the borrowers to figure out
the right way to connect lenders and borrowers and borrowers
and lenders so they can get in touch with each other. So we are
working with the lenders to put something together that will
make that happen in the most efficient way.
Mrs. Wagner. Thank you. Chairman Powell, in your efforts to
create broad-based programs, do you think that the Main Street
Facility will need to expand any further to meet the needs of
our businesses?
Mr. Powell. Let me say, as you have seen, the Secretary and
I work very closely on this, and we have been very willing to
learn from experience and learn from what we are hearing from
different parts of the economy, so we--
Mrs. Wagner. You certainly did with the PPP program, so I
would hope that you would approach this the same way.
Mr. Powell. We will. As you know, we are in the relatively
early stages of opening up a non-profit Main Street Facility,
and I think will be watching as the regular Main Street fully
comes online, and continuing to look to see whether there are
ways we can improve it.
Mrs. Wagner. Thank you. Chairman Powell, last week's
release of the Federal Reserve's Comprehensive Capital Analysis
and Review (CCAR) outcome and, more importantly, the results of
their COVID-19 sensitivity analysis, underscores the
resilience, I think, of the banking system. While we can all
agree that the level of uncertainty in the economy continues to
be high given the progression of the COVID-19 pandemic, I
believe the Federal Reserve subjected CCAR filers to
extraordinary assumptions regarding unemployment and GDP
contraction. Despite these assumptions, the 33 largest banks
remained above minimum Tier 1 capital requirements. Given that,
I am wondering why the Federal Reserve has indicated that firms
will need to resubmit capital plans, and, in addition, there
will be an off-cycle supervisory stress test in the ``latter
part of the year.'' The Federal Reserve has already- ncluded
firms' capital planning management processes and, I think,
approaches and assumptions, passed the toughest test. So, could
you explain that, please?
Mr. Powell. Sure. What the 33 institutions all passed was
the regular-way, severely-adverse scenario that we wrote before
the pandemic arrived. That is what controlled the outcome at
this time. Also, though, remember, the pandemic arrived right
in the middle of the stress test period, so we quickly devised,
without going through our usual very thorough vetting process,
three alternative sensitivity analyses, one of which was a V-
shaped recovery, one of which was U-shaped, and one of which
was a serious double dip, and these are very serious downside
side cases. We didn't use them to evaluate individual
institutions, but, rather, to evaluate the broad range of
institutions, and we didn't--
Mrs. Wagner. I am running out of time. Why lock up
additional capital now? This has the potential to have, I
think, a chilling effect on the economy at exactly the point
where banks need to provide credit and liquidity to households
and businesses to facilitate economic recovery and support and
financial intermediation in the capital markets. So, I will
leave you with that.
Mr. Powell. No, we didn't do that. We are not looking to
raise capital standards during a crisis. That is not what is
going on here.
Mrs. Wagner. Thank you for that clarification, and I yield
back.
Chairwoman Waters. Thank you. The gentlewoman from New
York, Ms. Velazquez, is now recognized for 5 minutes.
Ms. Velazquez. Thank you, Madam Chairwoman, and Ranking
Member McHenry. Mr. Secretary, at any time, have you been
blocked by President Trump or anyone else at the White House
from providing access to information requested by Congress or
an oversight body?
Secretary Mnuchin. No.
Ms. Velazquez. Have you ever prevented anyone within the
Treasury Department, or the Administration, more broadly, from
providing access to information requested by Congress or an
oversight body?
Secretary Mnuchin. If you are referring to an oversight
body, not that I am aware of, no.
Ms. Velazquez. Okay. So, tonight, the PPP program expires,
and you are advocating for extending that authorization. You
are telling us that you are already discussing this with the
Senate, but there is a role for the House.
Secretary Mnuchin. Of course.
Ms. Velazquez. Yes, and I will remind you that nothing will
move unless we have those conversations. As Chair of the House
Small Business Committee, I cannot in good sense make a
determination as to where the program should go or what tweaks
or what reforms the program needs unless we have access to the
data. When are you going to provide the data to our committee?
Secretary Mnuchin. I believe we said by the end of this
week, and we have reached out to your committee to make sure we
establish secure--
Ms. Velazquez. No, we got a letter, but no date has been--
Secretary Mnuchin. It is supposed to be delivered by the
end of this week. Let me just say, I am more than happy to
speak to you if you would like to set up a time to speak.
Ms. Velazquez. Sir, we have been contacting your office
every week asking for you to appear before the Small Business
Committee with the administrator. I spoke to her last week. She
intends to come before the committee. You are saying here that
we need to take care of those most hard-hit businesses in this
next repurpose of the $135 billion that is left, but we need to
know if the program worked as intended by Congress. We know
that 4 million businesses accessed the program, but what about
the millions of minority- and women-owned businesses that were
not able to access the program? You said that maybe a
restaurant might need to get a second loan. I just heard
Senator Marco Rubio--well, no one should get a second loan
unless we know that most businesses who are struggling get a
chance to get a loan.
Chairman Powell, as Chair of the House Small Business
Committee, I am particularly concerned about the state of our
nation's small businesses as the pandemic poses an acute risk
to their survival. How would the failure of small businesses,
especially those that are women- or minority-owned, adversely
affect the communities they serve, particularly those of color?
What impact could these failures have on future labor market
conditions?
Mr. Powell. Of course, the effects could be very
significant. Small businesses generate most of the jobs and
most of the growth in the economy, so that could be very
important, particularly in minority communities.
Ms. Velazquez. Chairman Powell, earlier this month, the
Organisation for Economic Co-Operation and Development (OECD)
said the pandemic has triggered the most severe recession in a
century and warned that the global economy could contract by
7.6 percent this year should a second outbreak hit. Do you
agree with this assessment?
Mr. Powell. That particular number--there is a range of
assessments, but I would say that is in the range. And, yes, I
can't think of a more--
Ms. Velazquez. And what impact do you see a second outbreak
having on both the U.S. and the global economy?
Mr. Powell. I certainly wouldn't forecast that, and, just
hypothetically, a second outbreak could force governments and
force people to withdraw again from economic activity. And I
think the worst part of it would be to undermine public
confidence, which is what we need to get back to lots of kinds
of economic activity that involves crowds.
Ms. Velazquez. Thank you. I yield back.
Chairwoman Waters. Thank you. Mr. Lucas, you are now
recognized for 5 minutes.
Mr. Lucas. Thank you, Madam Chairwoman. Chairman Powell and
Secretary Mnuchin, thank you for attending this hearing today.
And I want to begin by commending Chairman Powell on finalizing
the Inter-Affiliate Margin Rule. This may be the last time we
discuss this, sir. While these rules may seem abstract and
difficult to understand, they have a real impact on agriculture
and oil and gas producers back home that use financial
derivatives, manage risk, and plan for the future, which can
be, as we have seen in past months, to put it mildly,
unpredictable.
That said, as both of you know, commercial paper finances a
wide array of economic activity and provides liquidity for
companies to meet their operational needs. With the commercial
paper market under significant strain due to COVID-19, in mid-
March, the Federal Reserve established the Commercial Paper
Funding Facility to encourage investors to lend in the
commercial paper market, which ultimately supports businesses
and jobs across the country. Chairman Powell, could you
describe the current indicators of how the commercial paper
market responded to the creation of the facility, and has there
been a discussion to expand the facility to address liquidity
issues faced by Tier 2 issuers?
Mr. Powell. The Commercial Paper Facility has substantially
healed. As you point out, it really closed there in the
beginning part of March, as so many markets did, and when we
announced the facility, the highest-graded borrowers were able
to start borrowing. So largely, but not completely, that market
has returned to fairly normal function, and we are watching it
carefully. I would say we are not currently assessing whether
to broaden that facility, but should the situation deteriorate,
we would have that as an option.
Mr. Lucas. Thank you. Secretary Mnuchin, there have been
reports that China is restricting global agricultural imports
due to COVID-19. How are we working to resolve this with China,
and do you anticipate this impacting the terms of the Phase 1
trade agreement to purchase $200 billion in U.S. goods and
services, particularly the commitment to purchase $40 billion
in U.S. farm products?
Secretary Mnuchin. Let me just first emphasize that we have
very serious concerns about the lack of transparency from China
as it relates to COVID. Having said that, we have every
expectation that they will support and live up to the Phase 1
agreement, and they are well on their way for those
commitments.
Mr. Lucas. One last question. Native American tribes have
been hit particularly hard by COVID-19. Tribal employment is
often concentrated in the arts, recreation, and accommodation
industries. How has the Federal Reserve and Treasury been
looking specifically at the economic challenges faced by
tribes?
Mr. Powell. As to Main Street, of course, the tribal
businesses are eligible for participating in Main Street, and
that is where a lot of the economic activity is there. The
tribes themselves are not really general obligation issuers, so
they are not particular candidates for the Municipal Facility.
Mr. Lucas. Thank you. And with that, Madam Chairwoman, I
yield back the balance of my time.
Chairwoman Waters. Thank you. Mr. Sherman, you are now
recognized for 5 minutes.
Mr. Sherman. Thank you. Secretary Mnuchin, I am a very nice
guy, so I won't mention the press reports that say that over $1
billion in stimulus payments have gone to people who are
deceased. But I will urge you to adhere quickly to the
agreement that you have made with the Senate Small Business
Committee to very quickly release the names and data of all PPP
borrowers that have borrowed over $150,000.
Chairman Powell, back on March 12th, I sent you a letter
urging that you prohibit stock buybacks by banks. You have done
so. Thank you very much. About 2 weeks ago, you went on the
record to say, ``I would think that it would be of concern if
Congress were to pull back their support,'' having just said
that there are 25 million people who have been dislodged from
their jobs. I thank you for that advocacy, and I hope Congress
listens. We need to do more to stimulate this economy under
these circumstances.
Secretary Mnuchin mentioned the support that he's providing
to local and State Governments, but that is all in the form of
loans, and, of course, almost all State and local governments
can't run a deficit. So with their revenues down by hundreds of
billions of dollars, I hope we pass the HEROES Act and actually
provide aid to State and local governments. And one issue,
Chairman Powell, for the Main Street Lending Program that is
particularly relevant to commercial real estate is that if they
get a loan from you, they violate the loan covenants that they
have in their existing mortgage, and I look forward to working
with you on that. One possible solution is the bill that I
submitted, and we have had hearings on in this committee, the
Business Borrowers Protection Act. Certainly, getting a loan on
a program that we have authorized because of the COVID crisis
should not trigger the violation and make a pre-existing
mortgage immediately due and payable.
I spent this morning at the White House with a few of our
colleagues getting briefed on Russian involvement in
Afghanistan, and it appears to me, Secretary Mnuchin, that they
have been bold. They have killed our soldiers, because when
they do something else that we catch them on, we don't sanction
them very much. The debate now is whether they took the obscene
step of putting a bounty on the head of individual soldiers, or
whether they have limited their involvement in Afghanistan to
just aiding the Taliban, but not correlating that aid to how
many dead Americans this or that operation created. And, of
course, the response from the Administration to this seems to
be, well, let them into the G-8 and otherwise help them. That
kind of lax response will lead to more deceased American
soldiers.
Under the Chemical Weapons Act, which Congress passed a
couple of years ago, your Department was supposed to sanction
Russia for their violation of the Chemical Weapons Act when
they used poison to try to assassinate a Russian dissident in
Britain, but you opted for the weakest sanctions allowed by the
Act. What it does, is it prohibits certain loans from Americans
to the Russian government, but it doesn't apply to ruble
transactions. It doesn't apply to loans to state-owned
enterprises, and it apparently doesn't apply to purchases in
the secondary market.
Given the fact that our under-sanctioning of Russia has
led, at least, to their aiding the Taliban in a general sense
and, according to press reports, has led to the specific
putting of a bounty on our soldiers, could you revisit your
decision on this existing law and impose these bans on ruble
transactions, state-owned enterprises, and secondary markets?
Secretary Mnuchin. You covered a lot--
Mr. Sherman. It must be a tough question. You took off your
mask.
Secretary Mnuchin. Let me just comment, we believe we
followed the law and selected amongst a series of items at the
time, but I am happy to go back--I recall the situation--and
look at it again.
Mr. Sherman. There are credible reports that they put
bounties on our troops. Please, look at it again.
Secretary Mnuchin. Again, on that, I just want to be clear.
For the record, I am not commenting on classified information,
nor do I think it is appropriate in this setting to talk about
alleged information that is in the press.
Chairwoman Waters. Mr. Posey, you are now recognized for 5
minutes.
Mr. Posey. Thank you, Madam Chairwoman and Mr. Ranking
Member, for holding this hearing today to review the Treasury
and the Federal Reserve's pandemic responses.
Mr. Secretary, I want to commend your efforts and those of
the President's team, but most especially you, in working with
Congress to put relief in place during these extraordinary
times. The stimulus checks and the Paycheck Protection Program
have been tremendously successful in bringing much-needed
relief to hard-hit American families. It has been huge. Nothing
like it before. It is great, the very best there is.
Secretary Mnuchin. Thank you.
Mr. Posey. I also want to commend Chairman Powell for his
leadership in keeping the financial markets stable and liquid
in the face of the downturn in the general economic conditions.
We await full implementation of the Main Street Lending
Program, and I am looking forward to hearing more about that.
My first question is, our nation's hoteliers have been
facing one of the most severe downturns in demand of any sector
of our economy. Revenues have plummeted as much as 80 percent
during the shutdown, and extreme curtailment of travel, as you
know.
I am wondering--and I would like a response from both of
you--if you have the authority you need under Section 13(3) of
the Federal Reserve Act, and more broadly, the CARES Act, to
address the liquidity and cash flow crisis that the hotel
sector will be going through?
Mr. Powell. I will go first. We are not looking for
additional authority under 13(3). Our authority is, of course,
to lend to solvent institutions and in programs of broad
applicability, and any company in any sector that meets those
tests can borrow at one of our facilities.
Mr. Posey. Okay.
Secretary Mnuchin. The only thing I would just add to that
is that we do appreciate, and certain comments have been made
by this committee and others as it relates to loans that are in
securitizations, and particularly hotels and other real estate
that was properly levered beforehand. It does not lend itself
as well to the 13(3) facilities, and we continue to look at
that.
Mr. Posey. Okay. Mr. Chairman, some of our businesses,
including, again, the hoteliers, are warning that their
inability to make payments is threatening the servicing of
commercial-backed securities, and I just wonder if you can
bring us up to date on the status of the commercial mortgage-
backed securities (CMBS) market?
Secretary Mnuchin. As I just mentioned, one of the problems
of the CMBS market is there are very strict contractual
obligations, and that is why one of the things I do think we
need to look at in the next CARES Act is additional funding for
these industries that are the hardest hit, so they can continue
to rehire people, so that as occupancy increases, they have
employees that they can maintain.
Mr. Posey. Great. Thank you. I recently wrote to both of
you expressing my concern for businesses that are asset-based
and I believe they will face hurdles to assessing Main Street
Lending facilities because of the nature of their business
challenges, their ability to meet lending criteria, based on
the earnings before interest, taxes, and amortization, the so-
called EBITA. For example, an aircraft developer in my
district, especially an R&D organization, falls into this
category, and I wonder if you could tell me what the
possibilities are of providing access to Main Street Lending
facilities for businesses like that? And you can go first, Mr.
Secretary.
Secretary Mnuchin. We have discussed looking at asset-based
financing, and that is something we continue to discuss with
the Federal Reserve.
Mr. Posey. Okay. Mr. Powell?
Mr. Powell. Yes, that is where we are.
Mr. Posey. Thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you. Mr. Clay, you are now
recognized for 5 minutes.
Mr. Clay. Thank you so much, Madam Chairwoman, and I thank
both witnesses for your participation today.
Mr. Secretary, I am somewhat troubled by recent reports
that some banks have taken stimulus payments from individuals
and families, where the garnishment orders are negative account
balances, to offset unrelated debts owed to them. I find it
troubling that banks would serve as debt collectors at a time
like this when families need resources most.
When will Treasury issue guidelines articulating your
expectation that financial institutions refrain from taking
stimulus funds away from their customers during a time like
this?
Secretary Mnuchin. Let me first say I agree with you, and
that I think it would be awfully unfortunate if banks are doing
that. We have had inquiries about the issue of garnishment, and
we agree, from a policy standpoint, that there should have been
no garnishment. Unfortunately, that is something we need to
address in the next CARES Act if we do additional direct
payments, because there are certain State laws that were not
overridden in the existing CARES Act. But my understanding is
that is a State issue and not a Federal issue. But we agree
from a policy--
Mr. Clay. But think about the cruelty of the policy.
Wouldn't you want to--
Secretary Mnuchin. As I said, I agree with you on the
policy.
Mr. Clay. Couldn't you all issue a blanket--
Secretary Mnuchin. We have asked our legal department, and
unfortunately we can't, and that is one of the things we would
want to fix in the next CARES Act. So, we agree with you from
the policy standpoint.
Mr. Clay. Thank you. Chairman Powell, for many nonprofits
and small businesses, earnings before interest, taxes,
depreciation and amortization is not a widely used metric. Have
you considered applying other metrics of debt, future growth,
or financial health to the Main Street Lending Program so that
nonprofits and small businesses are fully able to participate?
Mr. Powell. Yes. As a matter of fact we have, particularly
for nonprofits, of course, earnings before interest taxes
doesn't make any sense. So, you don't need to take taxes out.
They are nonprofits. They don't pay tax. We are looking at a
range of--and we actually put this out for comment, and we got
a lot of very thoughtful comments from the nonprofit community,
looking at cash flow and also financial resources, more
broadly.
In terms of companies, EBITA is just basically pre-tax cash
flow. It is a very widely used metric. But there are other
metrics, and as the Secretary mentioned, one of them, probably
the next one in line, is something along the lines of asset-
based, and that is something that we are looking at with the
Treasury.
Mr. Clay. Under the Main Street Lending Program, you
reduced the minimum loan threshold from $1 million to $250,000,
and then by expanding the program to nonprofits with more than
50 employees. However, many small businesses may not need
$250,000.
Mr. Chairman, has the Fed considered eliminating the
minimum loan threshold altogether?
Mr. Powell. We have not considered eliminating it yet, of
course, and we are just now getting rolling with loans, as you
know. So we can, once we get up and running, look at lowering
it again, but you get into a very different kind of lending
when you are down lower. These are really personal loans rather
than business loans. They are generally guaranteed by the
business operator, and we could look at that. But that would be
something we would look at once we get up and running.
Mr. Clay. Yes, but it is kind of concerning that you have
that threshold at $250,000 when, say, a small business in St.
Louis needs $100,000 to survive through this pandemic until
they get back on their feet. Any consideration given to
accommodate that?
Mr. Powell. Yes. No, we can see ourselves possibly lowering
the threshold again, but just logistically, for us to be making
very, very small loans would be difficult, and those people may
be better dealt with through fiscal policy. But I can see us
down the road looking at a lower threshold.
Mr. Clay. I see. Thank you both for your responses, and
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you. Mr. Scott, you are recognized
for 5 minutes.
Mr. Scott. Thank you, Madam Chairwoman. Chairman Powell, we
all know that job losses have disproportionately impacted
women, African Americans, and other minorities, but at the same
time, our capital markets have improved significantly since the
epidemic. Why is that? Is there something you are doing more so
to help the capital markets than helping job losses corrected?
Mr. Powell. No. In fact, the objective of everything we are
doing, every single thing we are doing is to take the 25
million people whose working lives have been disrupted and
create a situation in which they have the best chance to go
back to their old job or to get a new job. That includes all
the facilities that we are doing. That is the overriding goal
of what we are doing, and every one of them helps in that
direction.
Mr. Scott. Yes, I know that is your goal, but what I am
trying to get at is, is it correctable? Are there some things
you can do to fix this imbalance between staggering lowering
unemployment and soaring rise in our financial capital markets?
Mr. Powell. What we have been trying to do is to create
accommodative financial conditions and supportive financial
conditions so that when the economy reopens--remember, we sort
of deliberately closed it down--that expansion can be vigorous
and strong, and it is just beginning now. Our support for that
is part of what is driving the job growth that you saw in May,
which was surprising to the upside.
Mr. Scott. Yes. Also, while we have both of you all here, I
want to pick up on what Chairwoman Waters was saying. We have a
great opportunity here to do both of these things, with our
housing and homeowner tranche that we are putting forward. This
goes right into the belly of our economic wheelhouse jobs,
keeping people secure, because it is coming. When 25 or 30
million people lose their jobs, how are they going to pay their
house note? How are they going to pay the rent? How are they
going to pay utilities? And more than that, how are the banks
and the financial institutions going to get their mortgage
payments so that they can make payments for the securitization
of those mortgages that keeps our financial system healthy?
So, I want to ask you to make sure that you all start
talking about these things that we are putting forward. You my
not agree with us on everything, but this is one that is very
important.
Let me go to one other area, to you, Secretary Mnuchin.
None of the lending facilities established have targeted the
needs of our agriculture industry. Now, why do I mention that?
Food. It is coming. I don't know why people can't see this
crisis. Food shortages are coming. It is almost like the
farmers have been the forgotten ones. Are they qualifiable as
small businesses? Many of them don't know. They are sort of out
there, just dribbling along the misty flats.
What are you all doing to help lift up and make sure that
we give our farmers, our rural communities the kind of help
that they need? Because all of the food chain is going down,
and you hear about the closures, the food processors are going
down. Farmers are coming. These are small. Most of them, they
are very important. Why can't they be qualified as small
businesses? Where are they? They are getting lost in the
shuffle. And if we get a food shortage, we are in--
Chairwoman Waters. Thank you. Mr. Luetkemeyer, you are now
recognized for 5 minutes. I would encourage all of the Members
to keep their mask on, please.
Mr. Luetkemeyer. Thank you, Madam Chairwoman, and thank
you, Secretary Mnuchin and Chairman Powell, for being here
today, and for your great leadership during this time. As we
have gone through this, you guys have been very responsive, and
you have been very cooperative. I can tell you from discussions
that we have had in different settings, you have implemented
lots of suggestions that we have come up with as a group, as a
Congress, and for that, we are grateful. Leaders make tough
decisions in tough times, and you have both exhibited the
ability to make those tough decisions, so thank you very much.
Both of you, in the past, have expressed your support for
housing finance reform and GSE credit risk transfer (CRT). In
prior testimony, you have committed to reviewing your
prospective policies to determine whether capital relief is
appropriate for U.S. banking organizations that engage in CRT
with sound counterparties. FHFA recently re-proposed a capital
framework for Fannie Mae and Freddie Mac, which adopts much of
the U.S. banking framework, but in doing so, seems to have
taken a confused and more punitive approach to certain types of
CRT.
I am encouraged by the questions posed in the proposal that
would seem to indicate that there remains room for revision
before the rule is final. I ask each of you gentlemen whether
you still agree that it is appropriate that the Enterprises
should receive meaningful capital credit for sound CRT
transactions that they conduct with sound counterparties and
avoid the accumulation of credit risks on the balance sheets of
two institutions that remain taxpayer-backed.
Secretary Mnuchin. Yes. I agree that they should receive
relief, that we should encourage them to do credit risk
transfers with creditworthy counterparties, and I can also tell
you that the Financial Stability Oversight Council (FSOC) is
beginning to review these issues as well.
Mr. Luetkemeyer. Chairman Powell, do you want to comment on
that as well?
Mr. Powell. No, I do agree, and we are actually in the
middle of doing a careful review of the whole capital proposal
as well.
Mr. Luetkemeyer. Okay. Thank you. As you know, it is hard
for me to let a hearing go without talking about Current
Expected Credit Losses (CECL), so we are going to try it one
more time.
In March of this year, the Federal Reserve and the FDIC and
the OCC issued an interim rule to delay for 2 years estimated
impact on regulatory capital at CECL, followed by a 3-year
phase-in. In addition, the CARES Act included an optional delay
in CECL implementation until the end of 2020 or the end of the
pandemic, which 25 percent of applicable entities actually
opted for.
The Department of the Treasury is also conducting a study
about the impact of Current Expected Credit Losses (CECL)--we
were directed to do that--and most recently, my colleagues and
I sent a bipartisan letter to the Financial Stability Oversight
Council (FSOC), urging for a delay on CECL implementation for
all entities until 2022, set every entity, both banks and non-
banks, which were not included in the CARES Act, on the same
footing, and Treasury can conduct the study with the input of a
real-life scenario that we have ongoing today.
Given the actions by Congress and the prudential
regulators, should we delay CECL, as I and my colleagues have
called for, and should the Treasury examine the real-life
scenario we have gone through when conducting their study?
Mr. Mnuchin?
Secretary Mnuchin. I think that should be seriously
considered, and yes, we are working on the study.
Mr. Luetkemeyer. The President issued an Executive Order
with regards to each agency, going through and looking at all
of the rules and regulations that were either waived, declined,
changed, whatever. If they don't work now, why should we
continue them down the road when we get out of this mess? And
so, I assume everybody is doing that.
And this particular accounting principle would seem to fall
in that area of, we need to be looking at this as something
down the road that we need to get rid of in its entirety.
Chairman Powell, would you like to comment on this as well?
Mr. Powell. No, I would agree.
Mr. Luetkemeyer. Okay. Thank you. I appreciate that,
because I think there is a time and a place for rules and
regulations. There is a time and a place that if they are
nonfunctioning, we need to get rid of them and start over.
With the Nationally Recognized Statistical Rating
Organizations (NRSROs) and the Federal Reserve emergency
facilities, I know you have heard a lot about this issue from
members on both sides of the aisle, Chairman Powell,
especially. The Fed took modest steps to include smaller NRSROs
in the most recent FAQs, but only if those ratings are
accompanied by one of the three incumbent NRSROs. I remain
concerned that the Fed's unilateral and haphazard chairing of
these NRSROs is going to have serious implications for small to
mid-sized businesses. Have you examined the impact delineating
between the large and smalls is having in the marketplace?
Mr. Powell. As you mentioned, we started out getting these
facilities set up very quickly, and we just went with the big
three. After that, I think more than a month ago, we broadened
it out to another group after taking a look. And we are
balancing the need to move quickly and to move with
institutions that we know well, or that are well-known, and
that we included more and more, and that is a process that we
are still looking at.
Mr. Luetkemeyer. Okay. Thank you very much. I yield back,
Madam Chairwoman.
Chairwoman Waters. Thank you. Mr. Huizenga, you are now
recognized for 5 minutes.
Mr. Huizenga. A point of inquiry, Madam Chairwoman. Should
that be on the other side of the aisle? Oh, I am sorry. Okay.
Thank you. I appreciate that. Mr. Chairman and Mr.
Secretary, the word, ``unprecedented'' has been banned in my
house by my college graduate--well, he graduated remotely--
because he was looking around and was a little tired of that
word being used.
He has a history. His grandfather, my dad, was born in
1921, on a kitchen table in the hired hand's home. My mother
was born in 1931 in Flint, Michigan--yes, that Flint,
Michigan--and had to move to Oklahoma, to the Dust Bowl, in the
middle of the Depression, to try to survive, when they lost
their house and my grandfather lost his job.
We know that there is history behind this. So, I am not
sure if this is, ``unprecedented.'' It certainly may be
unprecedented in a way, in the modern era, where we have seen
the government come in and sort of shut this down.
But what we do know, from looking at history, is that we
need to get the economy moving again. Now the question is how,
whether it is getting kids back to school, as some have
suggested, because if you can't get kids into school, that is
not going to then free up those parents to be available to
work.
Anecdotally, in my area, I know that manufacturers and
service companies are having a very difficult time getting
enough workers to come in to complete a full contingent of line
workers, for example, or to get a full shift filled. And there
are various reasons. Some have debated about the $600
additional per-week kicker as being a bit of a disincentive.
But nonetheless, we know that we have to address those
folks who really, truly are not able to get a job, and how do
we distinguish them from those who are just deciding not to
take that job?
One of the things that I have proposed is something called
the Patriot Bonus. The Patriot Bonus would be a 50 percent tax
credit to any company that would give a per-hour bump to their
employees, or a weekly bonus to their employees, or even a one-
time bonus to their employees, to incentivize them to come off
of that unemployment insurance system and get back engaged in
the workforce, and I think it is critical that we do that.
I do want to say, also, thank you for your work on the
Paycheck Protection Program. I have talked to Cheryl, who owns
a very popular bagel and coffee shop in my hometown, who knows
that she survived because of it. And Don, who owns a bowling
alley in my district, who was able to keep his folks on the
payroll. Those types of things are critical and were very, very
important.
As we are shifting to the Main Street program, I do want to
draw attention, and Chairman Powell and I had this conversation
a couple of weeks ago. I brought up La Colombe. La Colombe is a
Philadelphia-based company that has a manufacturing production
facility in my district. It is a 26-year-old, fast-growing
company. You may have gotten their coffee in the can. They
produce a number of great products. But for the last 6 years,
they have been really focused on their growth, and that also
means they have had to borrow a tremendous amount of money, and
that led to an accumulation of debt. Under some of the rules as
they are currently written, La Colombe would not qualify to
participate in the Main Street Lending Program, and I believe
that the way that the leverage ratio requirements in the
program are currently drafted really sort of, frankly, punishes
companies like La Colombe and others who would otherwise be
viewed as really, frankly, success stories.
So if it is the way the rules are currently written, it is
designed to prevent funds from going to companies that have
this debt, but sometimes those companies might be some of those
that need it the most.
I am hoping that you will commit, Mr. Secretary, to working
with me on that, to address that issue.
Secretary Mnuchin. Yes. I am not familiar with the company
but we are happy to follow up with you and see if it can work.
Mr. Huizenga. Great. And then in the remaining time, I
talked to Jeff this morning. Jeff is 52. I talked to Jim and
Eliza. He is 64, she is slightly younger, but she won't tell me
exactly how old. But what I do want them to know is, I want
them to hear from you, what do you want to tell them, and the
rest of Joe and Jane 401k who have their small investments in
the markets, that are there, frankly, to help them as they
approach retirement? What assurances can we give them about the
economy?
Secretary Mnuchin. I want to tell them and all the other
people that we are going to work with Congress to make sure we
can do whatever we can do to get everybody back to work who
lost their job due to COVID. And I am also extremely optimistic
about the research that is being done on vaccines and virals
and us combatting this terrible disease.
Mr. Huizenga. Thank you.
Mr. Powell. I would just say--
Chairwoman Waters. Mr. Meeks, you are recognized for 5
minutes.
Mr. Meeks. Thank you, Madam Chairwoman. Mr. Powell, you and
others at the Fed have written and spoken about the importance
of maintaining the economy, full employment, as a way to pull a
greater share of the minority workforce up, which is often the
first to be laid off and the last to be hired. And while this
is helpful, this is incredibly frustrating, as it is an
admission that everyone else gets a head start in the economy,
and communities of color only get out of the starting block
after everyone else has been running the race for months,
years, or decades.
Let me ask you first, Mr. Powell, would you agree that
structural discrimination exists in the United States in the
economy today and impedes the economic success of communities
of color and is a key to understanding why Black wealth is just
10 percent that of White communities?
Mr. Powell. Yes, I do agree.
Mr. Meeks. Mr. Mnuchin, would you agree also?
Secretary Mnuchin. I agree we need to do everything we can
to create a level playing field, yes.
Mr. Meeks. I also believe that our approach to addressing
the legacy of economic racism and discrimination must include
equity investments. Communities that have been financially
excluded for decades, or hundreds of years, that were
disproportionately impacted by the financial crisis, and now by
the COVID pandemic, cannot borrow their way out of poverty and
economic--I believe that sizable equity investments over the
coming decade into communities of color will be essential to
substantially lift them out of poverty and build resilience.
I am working on a proposal for creating a national
investment fund, pulling together capital from both the private
sector and the government, to invest in these communities over
the next decade or more.
Secretary Mnuchin, do you agree that massive amounts of
equity investments will be required to lift these communities,
and that debt alone cannot solve the problem?
Secretary Mnuchin. I definitely think investments in these
communities is important, and we look forward to working with
you on your specific ideas.
Mr. Meeks. Great. And Mr. Powell, can we count on the funds
and you working with us?
Mr. Powell. We would be delighted to.
Mr. Meeks. Given that, Secretary Mnuchin, the Treasury
Department has the capacity and the authority to invest Tier 1
capital into Minority Depository Institutions (MDIs), but has
never done so. Similarly, the Treasury Department could use
existing authority to mobilize deposits from trust funds into
MDIs, either directly or through custodial accounts, but it
does not do so. And since we agree that we need to have
investments, would you agree that MDIs play a critical role, as
we found doing PPP, in providing minority communities access to
capital, and I will ask you then, will the Treasury use its
existing authority and capital to provide direct support to
MDIs?
Secretary Mnuchin. I will have to review those authorities
and get back to you. If that is something we have, it sounds
very interesting. I am not familiar with those specific
authorities so let me look into it.
Let me just say also, the CDFIs did a terrific job as well.
Mr. Meeks. I agree. I should have added the CDFIs. We
concur on that.
But I look forward to working with you to make sure that we
are investing. We have public money as well as private money to
invest in those MDIs so that they have the capital and the
wherewithal to move forward. That is the way to govern.
Mr. Powell, has the Fed made a requirement of all asset
managers and broker-dealers with which they contract to partner
with minority firms in fulfilling contracts and transactions?
Mr. Powell. Yes. We do have obligations, for example, with
the companies we have contracted with during the pandemic. They
have to address diversity and inclusion issues at their
company, and they have to also reach out to minority suppliers
as well.
Mr. Meeks. And the Treasury? Secretary Mnuchin?
Secretary Mnuchin. Yes.
Mr. Meeks. Okay. So, I am hearing from both of you that you
will commit to incorporating this as standard to the Federal
Reserve and the Treasury policies across all capital market
programs that involve partnership with private sector asset
managers, broker-dealers going forward, with minority broker-
dealers and asset managers. Is that correct?
Mr. Powell. That is really part of our rulebook now,
actually.
Mr. Meeks. Mr. Mnuchin?
Secretary Mnuchin. Yes. That is something we will work on
as well.
Mr. Meeks. Thank you. I am out of time, so I yield back.
Chairwoman Waters. Mr. Stivers, you are now recognized for
5 minutes.
Mr. Stivers. Thank you, Madam Chairwoman. And thanks for
being here, Mr. Secretary and Mr. Chairman. I really appreciate
it.
Secretary Mnuchin, I am hearing from some lenders that are
being accused of failing to pay agents who assisted businesses
in preparation of their Paycheck Protection Program loan
submissions. And before participating in PPP, I heard comments
from banks that they were worried they might be exposed to
legal liability without sufficient safeguards in what is
essentially a government grant program. But they largely
participated anyway, because obviously, they felt like they had
a duty to their customers and the country during a time of
need.
Now I am told that many banks are being targeted by
litigation. It takes advantage of the lack of clarity about how
agent fees are supposed to be processed and how they work. For
example, banks don't have precise answers on where the fees
were supposed to come from, is an agreement between a bank and
an agent required before any work on the application is
completed or processed? Is this an issue you are aware of, and
does Treasury have a plan to offer any additional FAQs to
clarify the issue of agent fees and when they are due and how
that works?
Secretary Mnuchin. I have recently become aware of this
issue as well. What our guidance did say is that banks could
pay agent fees out of the fees that they received. That was
intended to be based upon a contractual relationship between
the agent and the bank. And to the extent there is any
confusion on that, we will look at clarifying that.
Mr. Stivers. It would be great if you could do a clarifying
FAQ, because I think it will prevent some litigation, or at
least allow for that litigation to move expeditiously and less
costly through the process.
Secretary Mnuchin. We will review that. Thank you.
Mr. Stivers. Thank you, Mr. Secretary.
Chairman Powell, Treasury and the International Association
of Insurance Supervisors (IAIS)have stated publicly that
proposals to retroactively amend business interruption
insurance policies to cover COVID-19 claims would endanger
financial stability. Specifically, IAIS stated that they
cautioned against initiatives seeking to require insurers to
retroactively cover COVID-19-related losses such as business
insurance, and that those things were excluded in the insurance
contracts. Such initiatives could ultimately threaten
policyholder protection and financial stability.
Do you share the concern requiring payoffs of uncovered
policies and that they could result in insurer insolvencies and
destabilize our financial system?
Mr. Powell. Actually, that is an issue that is really kind
of outside the periphery of our authority, except as you point
out, to the extent to which it relates to financial stability.
We are monitoring it, but so far, we haven't taken a position
on it.
Mr. Stivers. Please, continue to monitor it. If it results
in any kind of destabilization of the financial system, that is
your role. I get it. And I am not asking you to exceed your
role, but please pay attention to it.
Chairman Powell, could you kind of give us an overview of
the current state of municipal finance markets and the
effectiveness of the Fed's efforts to stabilize those markets?
Mr. Powell. I would be glad to. The municipal markets, like
so many other markets, really just about shut down in the
middle of March, and we announced the municipal liquidity
facility, and really that announcement has had an enormous
effect on the functioning of that market. So, you see a lot of
healing in that market. You see plenty of issuance of issuers
of different credit ratings and also different kinds of
issuers, revenue issuers. It hasn't returned to where it was in
February of 2020, but there has been a lot of progress.
As an example, the State of Illinois did most of its
financing in the private markets without our support and then
came to our facility for its last piece of financing. So, I am
very pleased that the announcement effect was very strong and
effective, and is helping a lot of borrowers now.
Mr. Stivers. Finally, I just want to say thank you,
Secretary Mnuchin, and thank you, Chairman Powell, for your
incredible leadership and availability through this crisis.
This hasn't been easy. Clearly, mistakes will happen when we
are in uncharted waters. But you both have been bold in your
leadership. You have made a difference. You have helped
businesses survive. You helped the economy survive. Thank you
for your incredible leadership, and we wouldn't be doing as
well without it. There is more work to be done. I appreciate
everything you have done and hope you will continue to focus on
small businesses and medium-sized businesses around Main
Street, because they are still struggling. Thank you so much.
Chairwoman Waters. Mr. Green, you are now recognized for 5
minutes.
Mr. Green. Thank you, Madam Chairwoman. I thank the
witnesses for appearing as well, and I would like to lay a
proper predicate for my questions.
According to the latest Home Mortgage Disclosure Act (HMDA)
data, in 2019 the vast majority of home purchase loans went to
White borrowers, at approximately 10 times that of loans that
went to Black and Asian Americans and Pacific Islanders (AAPI)
borrowers. Here are the numbers: the share that went to White
borrowers, 60.3 percent; to Hispanic borrowers, 9.2 percent; to
AAPI borrowers, 5.7 percent; and to Black borrowers, 7
percent--60.3 percent to White borrowers, 7 percent to Black
borrowers.
And even when lending discrimination does not result in
outright denials of credit, it drives up borrowing costs for
minority home buyers. Loans to Black and Hispanic borrowers
continue to be higher-priced for both conventional and
nonconventional loans in 2019. Home purchase loans were higher-
priced for the following share of borrowers: to Black
borrowers, 20.3 percent; to Hispanic borrowers, 23 percent; and
to White borrowers, 8.3 percent.
Consistently we see empirical evidence indicating that
there is invidious discrimination in lending, especially as it
relates to people of color. So here are my questions, dear
friends. Adjusting for education, credit score, assets, and
other relevant factors, do you believe that invidious
discrimination in lending exists against borrowers of color?
I have been collecting these pictures. I keep them in my
office. These are pictures of people who denied the existence
of invidious discrimination as it relates to people of color.
So my question to you is, do you believe that this
invidious discrimination exists in lending as it relates to
people of color? If you do believe so, would you kindly extend
a hand into the air?
[Hands raised.]
Mr. Green. Okay. Would you kindly hold them up? I'd just
like to get a good picture of you, Mr. Secretary. Thank you
very much.
Next question. Do you believe that this invidious
discrimination against borrowers of color can be addressed with
legislation? Can we craft legislation to help end this
invidious discrimination? If you think so, would you kindly
raise a hand? Legislation. Can we craft legislation?
[Mr. Powell raises his hand.]
Chair Powell seems to think so. Mr. Mnuchin?
Secretary Mnuchin. Can I respond to the answer?
Mr. Green. You can respond, but if you will be so kind as
to let me know where you are going first. Sometimes, when
people finish, I don't know what they said. This wouldn't apply
to you, of course.
Secretary Mnuchin. I think we have legislation, so I think
we need to do a better job. So I will say we can look at
legislation, but I think it is more than just legislation.
Mr. Green. Okay. I agree with you that it is more than
legislation, but would you agree that legislation can be a part
of the remedy? If you would kindly extend a hand.
[Secretary Mnuchin raises his hand.]
Mr. Green. Thank you. Now, I am in agreement with you. We
have a couple of pieces of legislation. H.R. 149, the Housing
Fairness Act, helps to deal with discrimination in housing as
it relates to people of color and others as well. And then,
H.R. 166, the Fair Lending for All Act, would put an end to
this race-based lending and discrimination. That is two pieces
of legislation, and hopefully, they will move in Congress.
But here is my final question. I believe that it is time
for us to reconcile in this country. We have survived COVID but
didn't reconcile. We survived the invidious discrimination that
exists now, segregation, but we haven't reconciled. If we had a
Department of Reconciliation with a Secretary of
Reconciliation, would you work with a Secretary of
Reconciliation, your departments, the agencies that you
represent, would you work with such a person to help us
reconcile in this country? If so, raise your hand.
Okay.
Secretary Mnuchin. Not knowing what that is, I guess--if
there is a department then--
Mr. Green. I can tell you, it would be a department
designed to eliminate invidious discrimination and racism. That
is what it would be all about, at the Cabinet level, hopefully.
Thank you both. And thank you, Madam Chairwoman. I yield
back.
Chairwoman Waters. Thank you. Mr. Barr, you now are
recognized for 5 minutes.
Mr. Barr. Thank you, Madam Chairwoman, and to Secretary
Mnuchin and Chairman Powell, I want to thank you both for the
very decisive and aggressive actions that you have both taken
from the outset of this pandemic. I think both the Fed and the
Treasury, through the emergency lending, and with the tools
that we have given you through the Exchange Stabilization Fund,
really made a difference in making a bad situation a lot less
bad, given the circumstances. So, thank you for your actions.
And as an example of the agility that you have shown,
Secretary, let me thank you, in particular, for responding
favorably to a letter that Representative Hill and I sent to
you about streamlining and making less bureaucratic the loan
forgiveness application under the PPP program. That was
tremendously helpful for both borrowers and lenders, cutting
that red tape. The EZ form is very welcome, and I appreciate
the fact that you were responsive to that.
Let me ask you a follow-up question about commercial real
estate. We have had a couple of questions from Mr. Sherman, and
Mr. Posey. This is a problem we have not addressed yet. And I
am hearing from many commercial property owners and borrowers
in my district, and across the country, especially hoteliers,
where occupancy rates remain very, very low. Shopping center
owners--retail clearly has not recovered. And other businesses
have been significantly disrupted by the pandemic.
I think we are going to see, without intervention, a wave
of foreclosures and defaults. And Secretary, you did identify
the problem with the inflexibility of these servicing
agreements. But I think you mentioned that we might need
additional legislation to allow hoteliers to hire back workers.
That is really not the issue. The issue is debt. They can't
service their debt because they don't have revenue.
So my question is, both of you all recently received a
letter from me, Congressman Taylor, Congressman Heck, and
Congressman Lawson, plus over 100 of our colleagues, urging the
Fed and Treasury to establish a facility to assist commercial
real estate borrowers, especially those with CMBS loans.
Secretary, you testified that you have $250 billion remaining
in the Exchange Stabilization Fund (ESF).
To both of you, does the Fed currently have the authority
to establish such a facility, and do you feel that market
conditions in commercial real estate warrant action by the Fed
and Treasury?
Secretary Mnuchin. Let me just appreciate and thank you for
your letter. This is a large challenge, so working with the
Fed, we have not yet figured out a way to set up a facility. It
is not out of a lack of interest or a lack of desire. There are
structural problems.
And let me just add, in many of these cases, these
companies don't need more debt. They need support. So one of
the things we will want to look at in the next CARES Act, as I
said, is additional support for these hardest-hit industries.
As the Chair has said, there is a difference between lending
and spending.
Mr. Barr. Right. Chairman Powell?
Mr. Powell. I just would echo, and I have your letter right
here, that I have been very focused on this. And you said it in
your comments, and it is in the letter, that more debt may not
be the answer here. Debt doesn't solve every problem you have.
People can't currently service debt. You have hese inflexible
arrangements.
So, there is a serious problem here that needs to get
fixed, and we are racking our brains to see how it could be
something we could do by lending. But that is really what we
can do, is create more debt.
Mr. Barr. I would encourage you to consider, in some cases,
that the covenants against additional indebtedness may be too
restrictive, that these owners could take on additional debt to
get them through this period of time. But I look forward to
working with you, whatever the answer is.
Quickly, on Main Street, Chairman Powell, I have heard from
a number of lenders and business owners who have indicated that
the terms of Main Street may discourage borrowers from applying
and lenders from participating. Some lenders had welcomed the
changes made recently by the Fed, but many are still far from
enthusiastic about participating.
What has been the response thus far from the lender
community, and how is the Fed going to encourage lender
participation, given the hesitations?
Mr. Powell. We have had a lot of interest. We do webinars.
We do outreach. And as I mentioned earlier, we have had
something like 300, a little more than 300 now, I think, turn
up. What the banks tell us is, though, is that it is sort of a
mixed thing. They are not getting a ton of interest from
borrowers, and many of them say that they expect that will
change--over the course of the next few months, they do expect
the demand from borrowers will increase. And I will just echo
that we continue to be open to playing with the formula and
making adjustments going forward.
Mr. Barr. My time has expired, but the reason why Main
Street doesn't work for commercial real estate is that EBITDA
limitation, as you know. But thank you. I yield back.
Chairwoman Waters. Thank you very much. Mr. Powell, the
issue of rules that we have talked about is on my radar. We
will continue to talk about this issue and pay attention to
what you are saying to us about it.
With that, Mr. Cleaver, you are recognized for 5 minutes.
Mr. Cleaver. Thank you very much, Madam Chairwoman.
Secretary Mnuchin, thank you for being here. Chairman Powell,
thank you for being here again.
I know that you have been asked by a number of Members
before me about the issue with Black and Brown business owners
being left out of that pot that was clearly intended to help
during these down times. And so I am frustrated, like a lot of
people, not only in Congress, but a lot of people around the
country.
What is your philosophy, Mr. Secretary--well, maybe not
your philosophy, but what do you have to say as to why weren't
rural and minority businesses more equally supported in the
emergency program? And what do you think happened?
Secretary Mnuchin. Let me just first say that we need to
all do a better job at making sure that we have sources of
funds for those businesses and to support those businesses. In
the PPP, we have worked with lots of different people to make
sure the CDFIs and the MDIs get there. But across-the-board, we
can always be doing a better job.
Mr. Cleaver. Thank you. I guess I am where I am now because
I am here dealing with these minority businesses right now, and
if I say we all agree we need to do a better job, do you have
any ideas on specifically, what we can do better?
Secretary Mnuchin. We would be happy to work with you on
that. We have been working with Robert Smith and a bunch of
external people to try to figure out how we can use the CDFIs,
how we can make sure MDIs have more access to capital. And I
think there is a lot of good ideas out there that we need to
continue to explore before we have one solution. I think there
are multiple solutions.
Mr. Cleaver. Okay.
Mr. Powell. Mr. Cleaver, I will just add that we are doing
a great deal of outreach with MDIs and CDFIs to get them access
to the programs that we are doing, including the PPP. And in
fact, we have a meeting with the National Bankers Association
tomorrow, on July 1st. So, we are doing a lot of outreach, and
we think it is having an effect.
Mr. Cleaver. Thank you. Actually, after you appeared before
our committee, I did have an approximately 40-minute meeting
with Esther George here, at the Kansas City Fed office. And I
said I appreciated her going into detail about the issues that
we were raising as best as she could.
So, thank you for doing that. I appreciate that. I just was
hoping that the Secretary would understand the pressure that
these businesses are under, which means that as representatives
of theirs, we are also in a tremendously pressurized situation.
I was hoping that I could go back and say, ``This is what we
are going to do henceforth.''
But I appreciate where we are. You can't respond to any
classified intelligence, so I won't ask those questions. But I
am, nevertheless, going to send you a letter, and I don't even
expect a response. I am doing this for my own personal historic
concern, and that is, I am sure that the next generation and
the generation after that will be asking us, ``Grandpa, what
did you do?'' ``Grandma, what were you doing during those times
when things were going off the rails?''
So, thank you both for appearing, and I yield back, Madam
Chairwoman.
Chairwoman Waters. Thank you very much. Mr. Tipton, you are
recognized for 5 minutes.
Mr. Tipton. Thank you, Madam Chairwoman. I appreciate, Mr.
Secretary, and Chairman Powell, you both taking the time to be
here.
And I do appreciate all of the efforts that you have made
to stimulate the economy and to help our folks at home. I did
want to bring up an issue that we have heard back in our
district. As you know, under the CARES Act, the government did
provide for communities of 500,000 or more people to be able to
apply directly to Treasury for assistance. In Colorado, that
translated into 59 of the 64 counties in Colorado were unable
to be able to receive direct assistance. In full recognition,
obviously, the traditional dollars went in over and above the
direct assistance that was able to be applied for.
And I guess, Mr. Secretary, I would like to be able to see
from you, has there been any oversight to be able to do what I
believe was the congressional intent, to be able to get those
dollars back into small communities, like those that I
represent, and have we had any sort of examination of how those
dollars are being spent by the States?
Secretary Mnuchin. Let me just say, we agree with you. We
thought the purpose was that we sent money to cities above
500,000. The reason why we didn't do it to less was purely
administrative. We have put out guidance saying that the States
should distribute money down. We have also had discussions with
the Inspector General to review this. So, we appreciate your
comments.
Mr. Tipton. Thank you, and I appreciate the recognition
that the small communities happen to--when we look at small
businesses--that was my real life--we create 7 out of 10 jobs,
and a lot of that does happen to be in rural America. And I
appreciate your attention to that as we are looking forward to
any other package that may come forward.
One of the biggest aspects, I think, that you have both
spoken to is the ability to be able to get the economy going
and to make sure that we are going to be able to create jobs
once again. But providing access to credit is going to be
ultimately critical to being able to do that. We have some that
are tempted to wipe that credit slate clean during the
pandemic. But I believe it is important that we do have an
accurate and a full credit profile to be able to have risk
mitigation that will help ultimately reignite lending in the
country quickly.
Secretary Mnuchin, would you speak maybe to the importance
of being able to maintain unaltered and complete credit
profiles so that lenders can evaluate the creditworthiness of
borrowers?
Secretary Mnuchin. Yes. I believe that is very important.
Mr. Tipton. One of the bigger issues that we are hearing on
PPP is that lenders across the country, big and small, readily
answered the call to be able to make those loans out to our
small businesses during the crisis. And since there was
essentially no guidance when lenders began providing PPP loans,
what can agencies do, Mr. Secretary, to the extent to hold them
harmless in terms of provisions to the entirety of the PPP
process and adequately protecting the lenders who are trying to
do the right thing?
Secretary Mnuchin. The lenders were merely intended to be
an intermediary. They were the fastest way that we could get
money to the businesses. Most of the certifications were
certifications that the borrowers had to make and that they
would be liable for. There were a few things that the lenders
had to do, which was check the payroll and payroll documents.
But yes, it was supposed to be predominantly a pass-through
mechanism.
Mr. Tipton. Okay. Thank you. And there is an interim final
rule on lender fees out of the SBA, indicating that if they
conduct loan review and determined that the borrower was
ineligible for a PPP loan, the lender is not eligible for the
processing fee. The SBA was also able to draw a claw-back
feature of the fee, within one year, if they determined that a
borrower is ineligible for the PPP loan.
Considering that those lenders, as we noted, did act in
good faith through the PPP process and have dedicated
significant amounts of resources to be able to help the
economy, why did the agencies decide to take this approach?
Secretary Mnuchin. Let me just say I hope that is a very
small number of loans that that turns out to be. But the
thought of the taxpayers paying fees to loans that weren't made
seems to be unfair, and I would just say, in general, I think
the fees were very attractive to the lenders. So, if there were
a small number of loans that they made where that was the case,
I think they were still well-compensated.
Mr. Tipton. Thank you, Mr. Secretary, and I yield back,
Madam Chairwoman.
Chairwoman Waters. Thank you. Mr. Perlmutter, you are
recognized for 5 minutes.
Mr. Perlmutter. Thank you, Madam Chairwoman. Gentlemen,
thank you for your testimony today. And thank you for your
leadership in the first 3 months of this emergency.
The pandemic dealt a real blow to the economy, and you
helped cushion the blow. But we are not out of this thing, by
any stretch of the imagination. Around Colorado, we see
California, Utah, Arizona, and Texas with rising case numbers,
rising hospital patients, rising death counts. And we also know
that at the end of July, the Pandemic Unemployment Insurance
payments cease, as it is currently written. We know that a
number of the moratoria on evictions and foreclosures begin to
cease. And the 8 weeks provided under the PPP, certainly for
those initial takers of the loans, start to run out.
So, I see a brick wall at the end of July. And Mr.
Secretary, you played a key role in helping to fashion the
fiscal pieces of this, the CARES Act. We call what we have done
as this next iteration the HEROES Act, so that law enforcement,
teachers, transportation workers, and medical staff don't get
laid off, in addition to the ones who have already been laid
off by local governments, by State Governments, and by school
districts.
I asked Mr. Powell a question when he was in front of our
committee a couple of weeks ago, on State and local government
assistance to backfill the tax revenue.I will say, though, from
a standpoint, State and local governments employ something like
13 million people. States have to balance their budgets. And
revenues go down and expenses go up, and what States do is they
cut costs. And we have seen State and local governments lay off
1.5 million people already. State and local governments provide
essential services, as we all know, so you know they are a
great and a big employer, and I would say it is certainly worth
considering.
If we don't do something, it will hold back the economic
recovery if they continue to lay people off and if they
continue to cut essential services. And, in fact, that is kind
of what happened after the global financial crisis.
Mr. Secretary, as you again are sort of in the middle,
between the House and the Senate and the White House, where are
you on assisting State and local and school districts to help
backfill the lost revenue that we have seen hit them already?
Secretary Mnuchin. Let me just first say, within the
context of the last CARES bill, we tried to issue guidance that
was as flexible as possible, particularly for firefighters,
first responders, and policemen, so that States could use that
money, and have a safe harbor, and didn't need to let any of
those people go, which, as you said, this would be the worst
time, when we need to support all of those people.
I am committed to working with both the Democrats and the
Republicans, in the House and the Senate. In July, as you said,
we have a lot of important features that all come to an end,
and I commit to continuing to have these conversations, and I
take great pride in the fact that we had enormous bipartisan
support in the previous bills, and I look forward to working
with everyone.
Mr. Perlmutter. And I would just ask you, because what we
have seen--as a Democrat, we passed this. The Senate has been
sitting on it, even as time is ticking. And in Colorado, for
instance, we are looking at probably a $2.5 to $3 billion drop
in tax revenues this year, and will see it again next year, and
probably the year after that.
And so, I would just ask you to really push on that one, or
there are going to be a lot of people laid off at just the
worst time, in very essential services.
And so, gentlemen, you have done a heck of a job. You get
patted on the back now, but we are still in this emergency, and
now we have to focus on going forward, which is this next
iteration, or there is going to be a lot of trouble come the
end of the summer.
With that, I yield back.
Chairwoman Waters. Thank you very much. I would like to
thank our witnesses for their testimony today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 2:45 p.m., the hearing was adjourned.]
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