[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE TREASURY DEPARTMENT'S
AND FEDERAL RESERVE'S PANDEMIC RESPONSE
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HYBRID HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 22, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-111
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
43-525 PDF WASHINGTON : 2021
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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:
September 22, 2020........................................... 1
Appendix:
September 22, 2020........................................... 39
WITNESSES
Tuesday, September 22, 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................................................. 8
APPENDIX
Prepared statements:
Mnuchin, Hon. Steven T....................................... 40
Powell, Hon. Jerome H........................................ 43
Additional Material Submitted for the Record
Mnuchin, Hon. Steven T:
Written responses to questions for the record submitted by
Chairwoman Waters.......................................... 55
Written responses to questions for the record submitted by
Representative Stivers..................................... 60
Written responses to questions for the record submitted by
Representative Kustoff..................................... 61
Written responses to questions for the record submitted by
Representative Gabbard..................................... 62
Written responses to questions for the record submitted by
Representative Barr........................................ 63
Powell, Hon. Jerome H.:
Written responses to questions for the record submitted by
Chairwoman Waters.......................................... 65
Written responses to questions for the record submitted by
Representative Anthony Gonzalez............................ 85
Written responses to questions for the record submitted by
Representative Hill........................................ 88
Written responses to questions for the record submitted by
Representative Kustoff..................................... 90
OVERSIGHT OF THE TREASURY
DEPARTMENT'S AND FEDERAL
RESERVE'S PANDEMIC RESPONSE
----------
Tuesday, September 22, 2020
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:34 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Sherman, Green,
Perlmutter, Himes, Foster, Beatty, Heck, Vargas, Gottheimer,
Gonzalez of Texas, Lawson, Tlaib, Porter, Axne, Casten,
McAdams, Adams, Dean, Garcia of Illinois, Garcia of Texas;
McHenry, Wagner, Lucas, Posey, Luetkemeyer, Huizenga, Barr,
Williams, Hill, Emmer, Zeldin, Loudermilk, Mooney, Davidson,
Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, Steil,
Timmons, and Taylor.
Chairwoman Waters. The Financial Services Committee will
come to order. Without objection, the Chair is authorized to
declare a recess of the committee at any time.
I want to remind Members of a few matters, including some
required by the regulations accompanying House Resolution 965,
which established the framework for remote committee
proceedings.
First, I would ask all Members on the Webex platform to
keep themselves muted when they are not being recognized by the
Chair. 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 has
been instructed not to mute Members except when a Member is not
being recognized by the Chair, and there is inadvertent
background noise.
Members on the Webex platform are reminded that 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 and closed
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 a mask. The Chair has a strong
preference for Members to wear a mask even while being
recognized by the Chair. Members who do not wish to wear a mask
may participate virtually through the Webex platform.
Before going any further, I would ask unanimous consent to
speak out of order, and I suppose this would be a personal
privilege. I would like to take a minute to acknowledge the
departure of a staff member, Lisa Peto.
Lisa has been with the committee for 8 years, working her
way up from a fellow to the committee's chief counsel. She has
been a dedicated, tireless, and committed public servant with a
keen understanding of procedure and a deep knowledge of the
legislative process.
Under Lisa's guidance, committee Democrats successfully
transitioned from the Minority to the Majority, and then, Lisa
was instrumental in the committee's transition from in-person
hearings to virtual and hybrid ones.
Lisa has accomplished so much with the committee, but her
most important accomplishment is her family. She is mom to her
son, Adrian, who recently celebrated his first birthday.
Lisa has been a valued member of my team, and I will miss
her dearly. So, I want to thank her for her service, and wish
her the best in her future endeavors.
Mr. McHenry. Madam Chairwoman?
Chairwoman Waters. I now recognize the ranking member to
speak out of order.
Mr. McHenry. Thank you, Madam Chairwoman.
As we all know, and as we grow in our service here, we know
how important having staff is to this whole process, how
essential it is that you have good staffers who are going to
represent their Member's perspective.
And I will tell you that Lisa has been a fierce advocate
for her principal's perspective. In negotiations, she has not
wavered in her view, her view being the chairwoman's view, but
at the same time, being cordial enough to have a conversation
and maintain relationships. That is a priceless bit of art that
is representative of Lisa's character.
And we are grateful, Lisa, that we have been able to work
with you. We wish that we had been more successful in our
negotiations with you personally. But it is due to your talent,
and it is also due to your knowledge.
And so, we thank you for your service to your country, to
our country, to this institution, and to this committee. And I
know committee Democrats especially will miss you. Committee
Republicans won't miss you quite as much. But we are certainly
grateful for the relationship that we have all been able to
have with you, Lisa.
Congratulations to you on your son and your new family, and
we hope that your time away will be but temporary from public
service. But thank you for your service to your country and
this institution.
And I yield back.
[applause]
Chairwoman Waters. Thank you very much, Mr. Ranking Member.
Today's hearing is entitled, ``Oversight of the Treasury
Department's and Federal Reserve's Pandemic Response.'' This
hearing is the committee's second 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 now recognize myself for 4 minutes to give an opening
statement.
Welcome back, Chair Powell and Secretary Mnuchin. Since you
last testified before this committee in June, the coronavirus
crisis has continued to have a catastrophic impact on
communities across the country.
Nearly 200,000 people in the United States have lost their
lives to the coronavirus, and there have been over 6.8 million
U.S. cases. Millions of families are struggling to make ends
meet during this crisis and are on the verge of eviction. Over
a million small businesses, which are the lifeblood of our
economy, have shut their doors as families across the country
are looking to Washington for leadership.
The Trump Administration has utterly failed in its economic
response to this virus, with 32 percent of renters unable to
make their full September rent payments at the beginning of the
month, according to Apartment List, and back rent piling up.
The need for emergency rental assistance to prevent a crushing
wave of evictions is growing every day.
Instead of rental assistance, the Trump Administration has
issued a Centers for Disease Control and Prevention action that
temporarily prevents evictions for some renters, but only after
they sign documents that potentially expose them to litigation
and criminal penalties. Meanwhile, the unpaid back rent
continues to accrue, meaning that the Trump Administration is
simply delaying, not preventing, evictions.
The Health and Economic Recovery Omnibus Emergency
Solutions (Heroes) Act, which passed the House in May to
prevent those evictions and provide other critical relief, is
gathering dust in the Senate on Mitch McConnell's desk.
I said before that I am pleased that after calls from
members of this committee, the Treasury and the Small Business
Administration made adjustments to the Paycheck Protection
Program (PPP) to ensure that community development financial
institutions (CDFIs) and minority depository institutions
(MDIs) are able to provide loans to the communities they serve,
and I appreciate that the Federal Reserve has expanded several
programs. But I am frustrated with the Trump Administration's
implementation of pandemic relief programs based on the
concerns I continue to hear.
Specifically, I am very concerned that much of the $500
billion Congress allocated in the CARES Act to Treasury, most
of which was to support Federal Reserve lending, to help
reeling businesses, nonprofits, and State and local
governments, has gone unused. Here we are almost 6 months after
the passage of the CARES Act and a mere 0.2 percent of Main
Street Lending Program funds and 0.3 of Municipal Liquidity
Facility funds have been put to use. This is unacceptable.
Secretary Mnuchin, Chair Powell, let me be blunt. This
pandemic response has fallen badly short, and the Trump
Administration has sabotaged efforts to pass a relief package
or address the major public health and economic crisis we face.
Your work to address this crisis doesn't stop when the stock
market recovers from its losses. Your mandate is to help
hardworking individuals and families who are suffering.
Before I close, let me say that I just learned today that
there are 40,000 students who have been infected with the
virus. That shakes me. And we still have people who are forcing
schools to open and not do distance learning. I don't get it.
And I didn't know until today that that many students had been
infected. So, I am very, very concerned.
I now recognize the ranking member of the committee, the
gentleman from North Carolina, Mr. McHenry, for 4 minutes.
Mr. McHenry. Thank you. We all know that testing,
treatment, and therapeutics need to come online for a full
economic recovery. That is moving at an unprecedented pace, I
would say, not just globally, but here in the United States,
with great innovators. The coordination between the public
sector and the private sector has been the best it has ever
been in generations. And this Administration's response to this
unprecedented pandemic, the Federal Reserve's response to this
unprecedented pandemic, is topnotch.
It is fantastic, the delivery that Secretary Mnuchin was
able to provide on PPP, which supported 51 million jobs and
issued over 5 million loans to small businesses impacted by
COVID. That was a direct intervention of the Treasury Secretary
and his team at Treasury.
The Federal Reserve stood up more Facilities in a 6-month
period of time than they did in the fullness of the financial
crisis. They stood up more Facilities than they did in decades
prior to this pandemic. So, I would give the Federal Reserve an
A-plus for its initial response and to where we are.
And just because Congress can't get its act together and
compromise to see a way through so that we can provide those
people who are still hurting because of this voluntary shutdown
of our economy because of this health crisis, we need to give
those people relief and we need to come to terms. That means
that Democrats and Republicans need to move to the middle.
And I would commend Secretary Mnuchin for his negotiations
and his willingness to move the ball forward on behalf of the
American people, even in the midst of the crazy politics that
we are currently experiencing, with people shouting in the
streets and threatening violence because they don't like
political perspectives.
So, I would commend him for being willing to negotiate
where others have walked away, like Speaker Pelosi and Leader
Schumer, and saying, ``$3 trillion is all we are going to
accept, and anything less is completely unacceptable.'' We need
to actually find a compromise to support those people who are
still out of work because of this global health pandemic.
Quite frankly, on that bill, Democrats would rather bail
out blue States and hold out for that rather than help people
who are still out of work because their jobs are shut down.
Let me finish with this. What we saw at the end of last
year was the best economy of our lifetimes. We had household
wage growth at almost 7 percent in 2019. Households were
feeling wealthy for the first time in a very, very long time in
my State of North Carolina, and across the country.
We need to do that again. We know that we are in the midst
of this health pandemic. We know that therapeutics are coming
online, treatment techniques are much better than they were at
any time since March, and those things are coming along. And
maybe there will be a vaccine, maybe, but we need to have
treatment and we need to have widescale testing so that people
can get back to some semblance of economic life.
But what I would like to hear today is the limits of the
Federal Reserve's actions and activities and where Congress
should act, because monetary policy simply cannot do the same
thing that fiscal policy can.
And on the fiscal side of the House, Secretary Mnuchin, I
would like to hear the economic plan from this Administration
on what, when we get past this awful, awful scourge of COVID,
that economic recovery must entail to get people back in the
position they were in in 2019, or even in January or February
of this year. I think there is a good story to tell and a
hopeful story to tell if we can work together and get things
done. And so, I look forward to your testimony.
I yield back.
Chairwoman Waters. I now recognize the gentleman from
Texas, Mr. Green, who is also the Chair of our Subcommittee on
Oversight and Investigations, for 1 minute.
Chairman Green. Thank you, Madam Chairwoman.
And, Madam Chairwoman, I would like to associate myself
entirely with your comments, and I would only add that the
stimulus, the economic impact statement, must be made because
the rent must be paid.
Yesterday, the Government Accountability Office (GAO)
reported that the Treasury Department lacks up-to-date
information on the number of eligible recipients who have yet
to receive their economic impact payments (EIPs). This new GAO
report follows previous GAO findings dating back to May 2020,
that persons not in the traditional employment relationships,
such as those working in the gig economy, may be missing from
the IRS EIP outreach. Without this data, it is very difficult
to know who is being left behind, and that number may be in the
millions.
I will say it again: The rent must be paid, and the EIP
payment must be made. If we do not do this, we will put persons
at risk of being evicted at a time when we are having a
pandemic that is still taking lives in this country.
I do believe that this can be done, but I know that we must
have more help to make sure the rent is paid. The EIP payments
are already there; they are funded. We need to make sure that
the people who need them will get the funds.
I yield back.
Chairwoman Waters. I now recognize the subcommittee's
ranking member, Mr. Barr, for 1 minute.
Mr. Barr. Thank you, Secretary Mnuchin and Chairman Powell,
for appearing before the committee today, and for your
continued efforts to combat the economic fallout from the
COVID-19 pandemic.
Treasury and the Fed acted swiftly to stabilize the
economy, keep businesses open, ensure the continued operation
of the credit markets, and promote long-term recovery.
Since you last appeared before this committee to testify on
the CARES Act implementation, the economy has improved.
Unemployment has decreased. Nearly half of the jobs lost in the
early days of the pandemic have been added back to the labor
market, and our economy is safely reopening. We are on the road
to recovery.
Policies put into place by Treasury and the Fed, and
actions you both have taken during this crisis, have put the
economy on a more stable footing.
However, important sectors of our economy, including
hospitality, conventions, entertainment, retail, and commercial
real estate remain in distress, and there are elements of your
responses to the pandemic that could still be adjusted as we
move forward. I look forward to discussing those today and
hearing your plans to implement a strategy for long-term
economic growth.
Thank you.
Chairwoman Waters. I want to welcome today's witnesses to
the committee.
First, I want to welcome Steven T. Mnuchin, the Secretary
of the Treasury. He has served in his current position since
2017. Mr. Mnuchin has testified before the committee on
previous occasions, so I do not believe he needs any further
introduction.
I also want to welcome our other distinguished witness,
Jerome H. Powell, Chair of the Board of Governors of the
Federal Reserve System. He has served on the Board of Governors
since 2012, and as its Chair since 2017. Chair Powell has also
testified before the committee on previous occasions, so I do
not believe he needs any further introduction, either.
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 that 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.
Chairwoman Waters, Ranking Member McHenry, and members of
the committee, I am pleased to join you today to update you on
how the Department of the Treasury and the Federal Reserve have
been partnering over the last 6 months to provide relief for
American workers and liquidity to credit markets, businesses,
nonprofit organizations, State and local governments, and
households. We are fully committed to getting every American
back to work as quickly as possible.
America is in the midst of the fastest economic recovery
from any crisis in the United States. The August jobs report
showed the economy has gained back 10.6 million jobs since
April, nearly 50 percent of all jobs lost due to the pandemic.
The unemployment rate decreased to 8.4 percent, a notable
achievement considering many people thought it could get as
high as 25 percent. Thanks to the programs provided by the
CARES Act, we never got close to that figure.
I believe we will see tremendous growth in the third
quarter fueled by strong retail sales, housing starts, home
sales, manufacturing growth, and increased business activity.
The September Blue Chip survey projects close to 24 percent for
third quarter GDP.
The recovery has been strong because the Administration and
Congress worked together on a bipartisan basis to deliver the
largest economic relief package in American history. The
Federal Reserve has been instrumental to the recovery by
implementing unique Section 13(3) lending Facilities. Economic
reopenings, combined with the CARES Act, have enabled us to
have an economic rebound, but some industries particularly hard
hit by the pandemic require additional relief.
The President and I remain committed to providing support
for American workers and businesses. We continue to work with
Congress on a bipartisan basis to pass a Phase IV relief
program. I believe a targeted package is still needed, and the
Administration is ready to reach a bipartisan agreement.
Treasury has been working hard to implement the CARES Act
with transparency and accountability. We have released a
significant amount of information on our website, Treasury.gov,
and USAspending.gov. We have released more information than was
required by the statute. The Federal Reserve has also posted
information on its website regarding the lending Facilities.
We have provided regular updates to Congress, with today
marking my 6th appearance before Congress for a CARES Act
hearing. We are cooperating with various oversight bodies: the
new Special Inspector General; the Treasury Inspector General;
the Treasury Inspector General for Tax; the new Congressional
Oversight Commission; and the GAO.
We appreciate Congress' interest in these issues and have
devoted significant resources to responding. We remain
committed to working with you to accommodate Congress'
legislative needs and further whole-of-government approach.
I would like to thank the members of the committee for
working with us to provide economic support to the American
people.
Thank you.
[The prepared statement of Secretary Mnuchin can be found
on page 40 of the appendix.]
Chairwoman Waters. Thank you, Secretary Mnuchin.
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. Thank you.
Chairwoman Waters, Ranking Member McHenry, and members of
the committee, thank you for the opportunity to update you on
our ongoing measures to address the hardship wrought by the
pandemic.
The Federal Reserve, along with others across the
government, is working to alleviate the economic fallout. We
remain committed to using our tools to do what we can, for as
long as it takes, to ensure that the recovery will be as strong
as possible and to limit lasting damage to the economy.
Economic activity has picked up from its depressed second
quarter level when much of the economy was shut down to stem
the spread of the virus. Many economic indicators show marked
improvement. Household spending looks to have recovered about
three quarters of its earlier decline, likely owing in part to
Federal stimulus payments and expanded unemployment benefits.
The housing sector has rebounded, and business fixed investment
shows signs of improvement. In the labor market, roughly half
of the 22 million payroll jobs that were lost in March and
April have been regained as people return to work.
Both employment and overall economic activity, however,
remain well below their pre-pandemic levels, and the path ahead
continues to be highly uncertain.
The downturn has not fallen equally on all Americans. Those
least able to bear the burden have been the most affected. The
rising joblessness has been especially severe for lower wage
workers, for women, and for African-Americans and Hispanics.
The reversal of economic fortune has upended many lives and
created great uncertainty about the future.
A full recovery is likely to come only when people are
confident that it is safe to reengage in a broad range of
activities. The path forward will depend on keeping the virus
under control and on policy actions taken at all levels of
government.
Since mid-March, we have taken forceful action,
implementing a policy of near-zero rates, increasing asset
holdings, and standing up 13 emergency lending Facilities. We
took these measures to support broader financial conditions and
more directly to support the flow of credit to households,
businesses of all sizes, and State and local governments.
Our actions taken together have unlocked more than a
trillion dollars of funding, which in turn has helped keep
organizations from shuttering, putting them in a better
position to keep workers on and to hire them back as the
economy continues to recover.
The Main Street Lending Program has been of significant
interest to this committee and to the public. Many of the
businesses affected by the pandemic are smaller firms that rely
on banks for loans rather than public credit markets.
Main Street is designed to facilitate the flow of credit to
small and medium-sized businesses. In establishing the
Facility, we conducted extensive outreach, soliciting public
comment and holding in-depth discussions with lenders and
borrowers of all sizes.
In response to feedback, we have continued to make
adjustments to Main Street to provide greater support to small
and medium-sized businesses and to nonprofit organizations,
such as educational institutions, hospitals, and social service
organizations.
Nearly 600 banks, representing well more than half of the
assets in the banking system, have either completed
registration or are in the process of doing so. About 230
loans, totaling roughly $2 billion, are either funded or in the
pipeline.
Main Street is intended for businesses that were on a sound
footing pre-pandemic and that have good longer-term prospects,
but have encountered temporary cash flow problems due to the
pandemic and are not able to get credit on reasonable terms as
a result.
Main Street loans may not be the right solution for some
businesses, in part because the CARES Act states clearly that
these loans cannot be forgiven. Our credit Facilities have
improved lending conditions broadly, including for potential
Main Street borrowers. The evidence suggests that most
creditworthy small and medium-sized businesses can currently
get loans from private sector financial institutions.
Many of our programs rely on emergency lending powers that
require the support of the Treasury Department and are
available only in unusual circumstances. By serving as a
backstop to key credit markets, our programs have significantly
increased the extension of credit from private lenders.
However, the Facilities are only that: a backstop. They are
designed to support the functioning of private markets, not to
replace them.
Moreover, these are lending, not spending powers. Many
borrowers will benefit from these programs, as will the overall
economy, but for others, a loan that could be difficult to
repay might not be the answer, and in these cases, direct
fiscal support may be needed.
Our economy will recover fully from this difficult period.
We remain committed to using our full range of tools to support
the economy for as long as is needed.
Thank you.
[The prepared statement of Chairman Powell can be found on
page 43 of the appendix.]
Chairwoman Waters. Thank you very much, Chair Powell.
I now recognize myself for 5 minutes for questions.
I am very appreciative, Chair Powell, of the explanations
that you are giving in anticipation of all of the questions
that we have about Main Street and other Facilities.
Earlier this month, our committee held a hearing on the
need for further Federal assistance to State and Territorial
Governments. Although each of the State Governors at that
hearing can borrow through private markets at more attractive
rates than the Municipal Liquidity Facility currently offers,
they affirmed the need to keep the Facility as an option in the
future, and the Guam Governor urged the Fed to make the
Facility available to Territories.
The Republican witness, Dr. Holtz-Eakin, a former
Congressional Budget Office Director, and Staff Economist for
President George H. W. Bush's Council of Advisers said, ``The
mystery to me has been the performance of the Treasury in using
essentially half a trillion dollars to backstop their
Facilities, including the Municipal Liquidity Facility. This
seems underutilized in my eyes, and I don't fully understand
why that hasn't happened. That is something that can and should
be more aggressively used.''
So, Secretary Mnuchin, at a time when a wide range of
businesses have been frustrated that they have been unable to
access their Facilities, again, like the Main Street Lending
Program, and we have heard the excuses that were given for
that, and we have Republican and Democratic State Governors
pressing for more assistance, do you agree there is more that
Treasury can do with the $500 billion Congress provided you to
enhance these Fed Facilities to support the economy?
Secretary Mnuchin. I, unfortunately, think there is not
more we can do. And part of the reason we agreed if there is
potential legislation is to reallocate that money to better
use.
Almost every single one of the Facilities has extra
capacity. I think that in the case of many businesses that
haven't been impacted by the virus, they are able to borrow in
the private markets.
As it relates to Main Street, we have worked very hard with
the Federal Reserve to roll out this program. It is based upon
underwriting from pre-pandemic, and I know there has been some
questions. We do expect to take losses on that, and we are
working closely with the Fed on that Facility.
Chairwoman Waters. Secretary Mnuchin, of the $600 billion
available through the Main Street Lending Program, only about
$1.2 billion has gone out the door to 118 companies. Would
Treasury object to the Fed eliminating the Main Street Lending
Program's minimum loan threshold of $250,000, so that small
businesses and minority-owned businesses who need smaller loans
could access the program?
Let me just say, I am appreciative, because when we started
out, when they first rolled out the Main Street Program, the
minimum requirement for the loan was $1 million, and you did
reduce that to $250,000. I am asking, can you go further in the
reductions so that the loans can be made to smaller businesses?
Secretary Mnuchin?
Secretary Mnuchin. I would be fine lowering that to
$100,000, and I will consult with Chair Powell afterwards on
lowering it.
Chairwoman Waters. Chair Powell?
Mr. Powell. There is very little demand in the Facility
below a million dollars. There isn't much interest at all below
a million dollars. So, this would have to be a different kind
of Facility. It wouldn't look like Main Street.
I think extending credit in those small quantities would
require a Facility built from the ground up that would be quite
different than Main Street. It wouldn't have the same
requirements. But we can talk about that. It wouldn't look like
the current Main Street Facility, though. It is just a very
different kind of a thing.
Chairwoman Waters. I am aware of how the Main Street
Facility was formulated, was created for the mid-sized
businesses, and also I am very much aware that they have to
repay those loans. But we have so many small businesses still
eligible for PPP and beyond, and certainly they would repay
those small loans that they could get. It is not that they are
absolutely looking to have those loans waived.
So, do you think that something can be done?
Mr. Powell. It is possible. I really do, though, think that
this is more appropriate for PPP loans, which are in the nature
of grants. I think that is a better way to approach these.
Trying to underwrite the credit of hundreds of thousands of
very small businesses would be very difficult. And I think PPP
is a better way to approach that space in the market, and I
think you were well-advised to use that.
Chairwoman Waters. Thank you.
I now recognize the distinguished ranking member, Mr.
McHenry, for 5 minutes for questions.
Mr. McHenry. Thank you, Madam Chairwoman.
Secretary Powell, let's begin here. In the Federal
Reserve's own data, we see that there is a substantial economic
recovery happening. We see economic numbers improving, and we
have many households that are about the same as they were, or a
little better off in terms of savings than back at the
beginning of the year. But we see many households much, much
worse off. And so it is sort of a tale of two different
recoveries, if you will, or two different experiences of this
pandemic.
So while we see good economic numbers, what are the areas
that you see as needing further assistance? What areas of our
economy do you see as needing further assistance to get us back
to something more normalized, given where we are with COVID?
Mr. Powell. I guess I would point to the labor market to
sort of capture the size of the issue. We still have 11 million
people out of the 22 million who were laid off in the payroll
numbers in March and April, still 11 million out there. And
that is really good progress. We have put fully half of them
back to work. But there is a long way to go. That is more
people than lost their jobs during the global financial crisis,
as I am sure you know.
So there is a lot of work to do there, and our policies
will support that, but it will go faster for those people if we
have--if it is all of government working together.
Mr. McHenry. Okay. Meaning that there is a fiscal response
to help support the economy for those most affected by COVID,
economically affected by COVID?
Mr. Powell. Yes. Now, of course, the details of that are
between Congress and the Administration, and not for the Fed to
say. But I do think that the recovery will go faster if we have
both tools continuing to work together, as they have so far, I
think, worked very well together.
Mr. McHenry. Okay. Thank you.
Secretary Mnuchin, there is much that has been made up here
on Capitol Hill about your negotiations on another CARES
package like we passed back in March, that you negotiated. You
are the lead Administration negotiator on that package, which I
think, from all sources, was a very solid piece of bipartisan
legislating, and I want to commend you for being the
Administration's voice and negotiator on that project. And I
think we got good results from the programs that you were then
able to set up in coordination with the Fed.
Along those lines, what are the components for the next
package that we need to take to support the economy, to get
things going again?
Secretary Mnuchin. I think the next package should be much
more targeted. It should be focused on kids and jobs and areas
of the economy that are still hard-hit, particularly areas such
as the travel business and restaurants. I think there is broad
bipartisan support for extending the PPP to businesses that
have had revenue drops for a second check. I think small
businesses are a large priority of that.
Mr. McHenry. Okay. So focused on small business and family
support, right? And that would be a strong foundation, I
assume, for this.
Let me ask you both this, treatment, therapeutics, massive
scale testing--we are getting up-to-speed with some really
first-rate testing across the country and getting kids back in
school in a safe way. Those things are sort of foundations for
us getting the economy going to the next degree, right? It is
not all going to be fiscal policy or monetary policy to get the
people back in restaurants again. It is not government
regulation. It is going to be people's decisions of whether or
not to engage in many ways, similar to getting on airplanes.
Along those lines, do you see the capacity for us to get to
a full economic recovery, Secretary Mnuchin?
Secretary Mnuchin. I do. I think it is just a question of
time. And I would just highlight, we are extremely pleased that
we have committed to 150 million point-of-care tests with
Abbott that will be delivered between now and the end of the
year, and we are working with other parties to deliver
comparable amounts of point-of-care testing with instant
results.
Mr. McHenry. So, it is instant results. And those are very
low-cost tests, are they not?
Secretary Mnuchin. That is correct.
Mr. McHenry. Okay. I thank you both for your testimony, I
thank you for being here today, and I thank you for your
leadership in the midst of this crisis. And I know we are still
deeply in the midst of it, of the economic effects of COVID.
And I want to thank you both for being there, both with the
life insurance policy and with the water to put out the flames.
You have worked in good stead on behalf of the American people.
Thank you both.
Chairwoman Waters. The time of the gentleman has expired.
I now recognize Mr. Himes of Connecticut for 5 minutes.
Mr. Himes. Thank you, Madam Chairwoman.
And thank you, gentlemen, for being here.
I am going to pick up on what the ranking member just said
about the insurance policy. My time in Washington is bracketed
by bailouts. Right before I got here, we passed the Troubled
Asset Relief Program (TARP), which led to a massive bailout of
the financial services industry and, of course, a bailout of
the auto industry. And now, through CARES, we are bailing out
the airlines; we are bailing out businesses large and small.
The government is very, very much in the business of bailouts.
I would point out to my friends on the Republican side that
all of those bailouts were promoted and passed and promulgated
by Republican Presidents. They might just bear that in mind as
they accuse my party of being socialist, but that is a
conversation for a different day.
Secretary Mnuchin, I had the opportunity to talk to Chair
Powell about this, so I want to talk with you about bailouts. I
would like to believe we could do fewer rather than more. I
don't like the idea of business managers large and small
thinking that every 5, 7, or 10 years, the Federal Government
will bail them out of liquidity crises or whatever it might be.
I also like the idea, as long as we are going to do these
things, that the American public be compensated for the use of
their funds for private and commercial purposes. And I admire
your efforts to get warrants and make sure that the American
public is compensated.
But there is a funny hostage situation that develops,
right? When I proposed that on a caucus call, I instantly got
calls from labor unions and the airline industry saying, no, if
you make the money cost anything, they won't take it and they
will fire us. That feels to me like a hostage situation: Give
me the money for free or we will not take it and we will fire
people.
So, Secretary Mnuchin, I would love to give you much of the
rest of my time. First, what do we need to do structurally to
get out of the business of bailouts?
And, second, how can we get out of this hostage situation,
in which I think you actually worked very, very hard, where the
American people are being compensated fairly for the use of
their money for private purposes?
Secretary Mnuchin. First of all, I would just say that this
is a very different situation than the financial crisis,
because in this case, the businesses that are impacted were
impacted because of COVID, which was not their fault, as
opposed to issues that they controlled.
I would say, in the case of the airlines, I think we struck
the right balance. We did get proper compensation for
taxpayers. I think it was very important, given what went on in
the travel industry. In the case of the national security loans
that we have made to the trucking companies, we took a 30
percent equity interest in that for proper compensation.
So, I agree with you that the government should be properly
compensated.
On the other hand, I think for very small businesses, like
the PPP, the money that we spent there, we saved significant
money on unemployment on the other side.
Mr. Himes. With respect to the warrants, Mr. Secretary, and
the 30 percent equity stake in the trucking company, what is
your philosophy? Is your philosophy to dispose of that position
as soon as you can do so safely and in a sound manner, or is it
to maximize the return to the American public?
Secretary Mnuchin. I don't think it is to absolutely
maximize the return, but I think that the American public
should reap the benefit. So my expectation is that is not
something we would liquidate now; we would liquidate when the
markets are more normalized and the economy is back to normal.
Mr. Himes. Let me run an offbeat idea by you. As it
happens, I had the opportunity to talk to both former Treasury
Secretary Paulson and another former Treasury Secretary about
it. One of the vehicles for capturing common wealth for the
citizens of a country is a sovereign wealth fund. As you know,
Persian Gulf countries use it, Alaska uses it, Norway uses it,
largely oil-driven wealth.
Should Congress investigate, if we are going to be in the
regular business of bailouts and receive a return on those
bailouts, should we look at establishing a sovereign wealth
fund in order to take the proceeds from that common wealth and
either use it as an insurance fund or use it to disburse
however we may choose to disburse? Is that an idea that makes
any sense to you?
Secretary Mnuchin. Let me just say that most countries that
have sovereign wealth funds, or in the case of Alaska, it is
typically for future generations where they are focused on, in
the case of many places, energy and things like that, that will
not necessarily be around forever.
I don't necessarily think the U.S. should have a sovereign
wealth fund. On the other hand, I think taking the profits and
putting it into an account that is reserved for future
emergencies is a very interesting idea, and I would be willing
to explore it with you.
Mr. Himes. Good. I am going to take you up on that offer.
Again, I don't think any of us want to be in the persistent
business of bailouts, but if we are going to do it, I think we
should make sure that the American public is amply compensated
for the use of their money.
Thank you. I yield back the balance of my time.
Chairwoman Waters. Thank you very much.
I now recognize the gentlelady from Missouri, Mrs. Wagner,
for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman.
Secretary Mnuchin and Chairman Powell, thank you for being
here today.
I have been hearing from employers across the Second
District of Missouri who desperately need Congress to do its
job and pass coronavirus relief legislation so they can do
their jobs and keep handing out paychecks to their hardworking
employees.
Earlier this month, the Senate acted to pass relief
legislation that could actually be signed into law. That
package would have given relief to families, schools, child
care providers, small businesses, and those who need it most.
At a time when so many are struggling, we really do need to put
America's families first.
And I am sick of the partisan politicking, the partisan
wish lists. It should have no place in this conversation.
Congress should be laser-focused on providing targeted and
immediate relief.
The Senate Majority supports a second round of PPP money
that would keep our small businesses afloat, and I call on my
colleagues in the House to bring this to the Floor.
Secretary Mnuchin, I am grateful also, as the ranking
member mentioned, for your due diligence and your work in
negotiating this and what it means for our small businesses,
including, as you said, restaurants, the travel and events
industry, dentist offices, and so many others that keep
Americans employed.
You talked a little bit about how passing the second round
of the Paycheck Protection Program would keep America on track
for a full economic recovery. How much money do you think we
could repurpose from CARES in order to do this? And tell us
again what this would mean in terms of economic recovery?
Secretary Mnuchin. I agreed that we had approximately $450
billion that was allocated to work with the Fed on the Section
13(3) Facilities, and I agreed that I would reallocate $200
billion of that, that is not being used. That obviously needs
congressional support, but we would reallocate that. And,
again, our priorities are kids and jobs.
Mrs. Wagner. Right.
Secretary Mnuchin. I think there is very strong bipartisan
support for the PPP. I know that both committees in the House
and Senate have worked on revisions that are necessary
revisions, and we would look forward to working with both
parties on that.
Mrs. Wagner. And that could be passed today and signed into
law today. Is that correct?
Secretary Mnuchin. The President would very much support
signing into law additional PPP money immediately.
Mrs. Wagner. We must act. It is clear that the best
economic stimulus package we can give to the American people is
a fully open economy. It brings people back to work, allows
economic growth to begin, and will restore our economy.
Chairman Powell, do you agree that reopening has increased
economic activity and jump-started the process of bringing the
U.S. back to pre-pandemic prosperity?
Mr. Powell. Yes, I do. We need to reopen the economy so
people can go back to work, and we need to do it in a
sustainable way. And that is why I always mention that a part
of reopening quickly and effectively is to keep the virus under
control, and that takes basic measures like wearing masks and
things like that, and gets--the two things go together. A fast
reopening and maintaining these sorts of measures actually go
together.
Mrs. Wagner. Absolutely.
The President's plan to reopen America has enabled States
to tailor their reopening plans to address the specific
challenges in their States and regions.
Chairman Powell, how does this State-by-State approach
ensure success, especially when it comes to States that are
responding differently to the pandemic? And are there any
regulatory burdens you are aware of that should be removed to
improve States' abilities to quickly and safely reopen?
Mr. Powell. The question of how to reopen exactly and what
policies to use, that is a question that is one for elected
officials at the State and local level, not for the Federal
Reserve, and so I wouldn't be a good judge of that.
I would say in terms of regulatory adjustments, we have
made a number that have been designed to allow banks to serve
their customers in this. We have relaxed a number of
regulations temporarily, and we think that has really helped
them serve their customers in a way that doesn't at all
endanger safety and soundness. We are open to doing more of
that, but many of those things we have done. And, frankly, the
economy is healing now, so--
Mrs. Wagner. The economy is healing, and I do believe that
many of the regulatory burdens that we have lifted are things
that could be sustained even beyond this pandemic. So, I hope
that this committee will be able to take a look at that as we
go forward.
I thank you for your answer.
And I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you.
I now recognize the gentleman from Illinois, Mr. Foster,
for 5 minutes.
Mr. Foster. Thank you, Madam Chairwoman. And I thank our
witnesses, as well.
Chairman Powell, the Fed recently announced hypothetical
scenarios for the second round of bank stress tests, and unlike
the results of the sensitivity analyses conducted earlier this
year, you will be releasing bank-by-bank results.
I appreciate this transparency and believe it is very
important for markets, policymakers, and the banks themselves
to have this information be public. One of the tragedies of the
last financial crisis was that in the months prior to the
crisis, as pressure built on financial institutions, they did
not use this time to raise capital until it was too late.
Hopefully, the prospect of publicly disclosed stress tests will
help avoid a repeat of this behavior if the pandemic downturn
continues.
Now, you are going to be using the results of these stress
tests to determine whether the restrictions on shareholder
dividends and the prohibition on buying back shares will
continue through the fourth quarter. So my first question is,
will you be making these determinations on a bank-by-bank basis
or will all of the large banks be subject to the same
restrictions?
Mr. Powell. Yes, that is going to depend on a lot of
things, and those are decisions we will make down the road, but
I think we will be looking probably to use the bank-by-bank
approach.
Mr. Foster. Thank you.
And given the continuing high unemployment, the failure of
the Senate to pass any new COVID relief, and the uncertainty
and volatility of a large number of economic indicators, will
you err on the side of conservatism and safety in making these
determinations?
Mr. Powell. I think the stress tests themselves always err
on the side of safety. We think of very extreme scenarios,
severely adverse scenarios, and so that has generally been our
approach overall.
Mr. Foster. I appreciate that.
Will you be reanalyzing the living wills of the giant banks
to ensure that they could be executed properly at a time of
COVID pandemic with, for example, most of the workforce at
home?
Mr. Powell. We don't have any plans that I know of to
change the schedule of doing that. Banks have to resubmit those
on a regular schedule, and I think we will just stick to that
schedule.
Mr. Foster. Okay. I urge you to keep an eye on that,
because if we have to execute them and it is not possible in
the pandemic conditions, we will regret that.
Potential problems may not be confined to a small number of
giant banks. For example, the savings and loan crisis was the
result of losing bets made by over a thousand smaller
institutions, and the taxpayers ended up on the hook for
bailouts amounting to about 2 percent of GDP, which is huge
compared to TARP, in which the taxpayers actually got their
money back with at least some interest.
And given that the fates of small banks are more closely
tied to the fates of small and medium-sized businesses, which
are often most at risk of business failure during the failed
response to this pandemic, what should we be worried about in
regards to the potential need to bail out large numbers of
smaller banks if the pandemic continues?
Mr. Powell. I guess I would say we spent 10 years, and the
banks spent 10 years strengthening their capital, their
liquidity, and their understanding of the risks and their
management of them, and so far, the banking system has held up
well.
Now, we don't know where we are in this whole process, so
we will be continuing to, as you can see from the stress tests,
continuing to do those things that we need to do to continue to
assess those things in the banking system. But so far, we don't
see the kinds of problems you are talking about.
I think with smaller banks, the issue is that there has
been a 30-year trend of consolidation and banks going out of
business, and that is not a trend we want to do anything to
exacerbate. I do think that smaller banks are going to probably
bear too much of the burden here. They have more exposure to
real estate and to smaller businesses, which are probably more
vulnerable and have less resources to deal with this sort of
stress.
I think we will be watching carefully to make regulatory
adjustments, supervisory adjustments, to make sure that we give
those banks every chance to serve their customers and to make
it through this difficult time.
Mr. Foster. Yes. Thank you. One of the problems that we
have in financial regulation is that we always seem to be
fighting the last war, and we maybe should look two wars back
in this.
In my limited amount of time left, you introduced a new
strategic framework for conducting long-term monetary policy,
and as part of that you discarded the idea of a fixed goal for
full employment. Instead, you are going to consider a wide
range of indicators in making an assessment of whether there
are any shortfalls in employment. And I urge you to do that
very publicly and transparently, because you can get different
answers by choosing different measures, both for inflation and
for unemployment.
Thanks. My time is up. I yield back.
Chairwoman Waters. Thank you very much.
I now recognize the gentleman from Kentucky, Mr. Barr, for
5 minutes.
Mr. Barr. Thank you, Madam Chairwoman.
And I want to first start by responding to my friend
Representative Himes' comments about bailouts, because I share
my friends antipathy for what he describes as bailouts. But I
do think it is important to point out that a bailout, at least
the way I look at it, implies that the government is saving
businesses from mismanagement or excessive risk-taking or the
use of taxpayer funds for private use in a way that would
promote moral hazard.
We saw some of that, I think, in the aftermath of the
financial crisis, but that is not what we have here. What we
have here is a congressional response to many State and local
governments imposing restrictions. Now, some of those
restrictions may be very warranted in response to a pandemic.
Others may criticize some of those restrictions as being
overzealous or draconian.
But, nevertheless, this congressional response in the CARES
Act or the PPP program or the Main Street Lending Program or
some of these liquidity Facilities seem to me more like a
compensation for a regulatory taking. So, I think it is
important to point out that distinction, a regulatory taking.
I do want to ask Chairman Powell about Main Street, and I
do think there is interest among potential borrowers to
participate in this program. But many businesses and lenders
are reporting to us in Congress that the program is not working
for them. To date, the Fed has committed less than one-half of
1 percent of the total available funds under the program, and
so an argument can be made that the program isn't performing to
its full potential.
Last week, the Fed issued updated FAQs about the program,
and I have heard from banks in my district that the updates are
unlikely to move the needle.
You mentioned that smaller loans for smaller businesses
under a million dollars--that this program may not be right for
them; it is more suited to a PPP. But, Chairman Powell, I would
offer for your consideration that for some of those businesses
that would need a smaller loan, the PPP program really doesn't
help them because their payroll is fairly limited and they have
larger amounts of debt.
So my question initially would be, is the Fed considering
publishing more targeted guidance, underwriting standards,
documentation requirements for the smallest Main Street loans?
Mr. Powell. As you know, Mr. Barr, the limit now is
$250,000, and we actually have very little demand below $1
million, as I told the Chair a while back. So, we are not
seeing demand for very, very small loans. Because the nature of
the Facility and the things you have to do to qualify, it tends
to be sort of larger-sized businesses.
Lending at the very small end, under $100,000, it tends to
involve a lot of personal guarantees--you are lending to a
person and that person is guaranteeing what is a very small
business, and that just is not a Facility that we currently
have. We would have to start from scratch to develop that.
Mr. Barr. Fair point. Just the feedback we are getting is
that, for those smaller loans, the lenders are telling us that
they really would prefer to use their existing structuring,
underwriting, and documentation and account monitoring
processes in order for them to get into that smaller level of
loan.
I want to talk about EBITDA restrictions in the program,
too. The restrictions that we have in the program right now do
prohibit many commercial real estate borrowers from accessing
the program. In the FAQs released last Friday, you indicated
the Fed had studied whether to allow for collateral-based
calculations for asset-heavy borrowers but, ``determined that
conditions do not warrant such changes at this time.''
How did you come to this conclusion? And are there ways to
retool Main Street to work for commercial real estate
borrowers?
Mr. Powell. We have spent with Treasury a great deal of
time looking, because we hear these things, too, probably from
the same people, and we look for places where the banking
system, the lending system is not working for commercial real
estate.
And a big part of that, of course, is the commercial
mortgage-backed securities (CMBS) market, and we don't have an
answer to that, because there are a couple of problems with
CMBS that make it impossible to make additional loans, for
example, and the servicers have to pay. So, it's hard to get
foreclosures.
So we look at other places in commercial real estate, and
really it is not easy to find places where we could have much
of an impact.
Mr. Barr. And I appreciated our conversation earlier where
you said that the Fed's emergency lending powers may be not
particularly suited for CMBS.
But, Secretary Mnuchin, I appreciate the communication with
your team on this issue and particularly CMBS. Could you detail
what Treasury is doing to monitor and respond to these
challenges facing commercial real estate?
Secretary Mnuchin. First of all, I am sympathetic to the
issue, and we have spent a lot of time internally trying to
figure out if there is a way we could structure a program with
the Fed.
And as the Fed Chair said, unfortunately, there is a
structural problem with limitations and additional debt and
prepayment penalties. I think the best way to help many of
these is with additional PPP funds so that people can pay rent,
so that owners can pay their mortgage.
Mr. Barr. Thank you. I yield back.
Chairwoman Waters. The gentleman's time has expired.
I now recognize the gentlelady from Ohio, Mrs. Beatty, for
5 minutes.
Mrs. Beatty. Thank you, Madam Chairwoman. And I thank the
witnesses, as well.
We have heard a lot today about reopening the economy. We
have also heard a lot about the pandemic, health and safety.
And, Chair Powell, you even used the words, ``they go hand in
hand'' and actually used the words and pointed to your mask, by
wearing a mask. All of that is a part of it.
So to you, Mr. Secretary, we recently learned that the
White House had scrapped plans at the United States Postal
Service to send approximately $650 million worth of masks
through the mail. Maybe that is because President Trump sees no
value and tweets about not wearing one. You have had a lot of
involvement with the operations and governance of the U.S.
Postal Service. Were you involved in that situation about
scrapping the plans or are you aware of it?
Secretary Mnuchin. Just to be clear, I think I read
something in the press about that alleged situation. Never, in
any of my task force meetings, do I recall that being discussed
or any plan being scratched whatsoever. It may have occurred in
a different part of the government. But, no, I have not heard
anything about that.
Mrs. Beatty. Would you be willing to look into it since
we--most experts, not me, certainly, as a Congressperson, but
certainly scientists and medical personnel have all stated that
wearing a mask is helpful in preventing the spread now that we
know over 200,000 people have died. Would you look into that,
since you have had involvement with the U.S. Postal Service?
Secretary Mnuchin. I would be happy to, and we will get
back to your staff.
Mrs. Beatty. Thank you very much.
My next question is, certainly we know that when we talk
about reopening the government, would you both agree if people
are healthy and if they have healthcare, then that, too, goes
hand in hand with reopening the economy by having people be
healthy enough to go back to work? That is a yes-or-no
question.
Chair Powell?
Mr. Powell. Yes. Sure.
Mrs. Beatty. Mr. Secretary?
Secretary Mnuchin. Yes. And I just would add that one of
the reasons we liked the PPP is that it kept employees
connected to their businesses, which in many cases allowed them
to keep their healthcare.
Mrs. Beatty. Okay. Earlier this year, the Trump
Administration submitted a brief to the Supreme Court urging
them to overturn the Affordable Care Act, which would strip
roughly 20 million Americans of their healthcare in the midst
of this historic pandemic that has already cost the lives of,
we know today more than 200,000 Americans, including stripping
protection for preexisting conditions, and kicking many of our
younger adults off their plans. We are also hearing now about
how great their numbers are. I have been in Congress for 8
years, and I have voted against it dozens of times.
Chairman Powell, what effect would stripping 20 million
Americans of their healthcare in the midst of this COVID-19
pandemic have on the economy?
Mr. Powell. I wouldn't want to comment on a particular
Supreme Court case. But as you mentioned, healthcare is an
important part of the support system that people need.
Mrs. Beatty. Let me say it this way, Mr. Chairman. Do you
think stripping healthcare or not having healthcare would be
bad for the economy?
Mr. Powell. As you started with, I think that having
healthcare coverage is an important basis for people to go to
work. It is one of the reasons people do work, and it helps in
continuing your work.
Mrs. Beatty. Would you say that is a yes? Then, would you
say that is a yes, that having healthcare would certainly be a
plus or a positive to having people--come on, 200 million
people have died. Look at the numbers. If I look at African-
Americans making up 13 percent of the population but having
almost 30-some percent positive results, with 24 percent dying,
don't you think healthcare plays into keeping people healthy,
and the economy?
Mr. Powell. Yes, I do.
Mrs. Beatty. Thank you.
Chairman Powell, according to the transaction data of the
Secondary Market Corporate Credit Facility that the Federal
Reserve published on Sunday, the Fed purchased corporate bonds
of dozens of companies that are in good financial condition,
like Apple, which has more than $200 billion cash in hand.
How does buying corporate debt of large companies in good
financial condition help further the Fed's mandate? And how
does buying corporate debt of foreign-owned companies, like BP
and Toyota, further the Fed's mandate?
Mr. Powell. None of those secondary market corporate debt
purchases extend any new credit to anybody, so that is just
buying an outstanding bond. And the reason we are doing that is
to have a footprint in the after market, which, should
conditions deteriorate, would enable us to continue to have
good financial conditions, which would support companies and
allow them to keep workers on staff.
Mrs. Beatty. Okay.
Chairwoman Waters. Thank you. The gentlelady's time has
expired.
I now recognize the gentleman from Texas, Mr. Williams, for
5 minutes.
Mr. Williams. Thank you, Madam Chairwoman.
As most of you know, I am a small business owner.
I want to thank both of you for coming before our committee
today. Both the Treasury Department and the Federal Reserve
have worked with incredible speed to implement the CARES Act
and get resources in the hands of hardworking American
businesses. I applaud you both for your leadership and your
efforts during these uncertain times, and Main Street America
also thanks you.
Some local governments in my district in Texas are sitting
on the money they received from the corona relief fund because
there is uncertainty surrounding what counts as an eligible
expense. For example, one local government in my district would
like to spend the money to buy food for a local food pantry
since many of their citizens are seeing food insecurity as a
result of the economic shutdowns, but they are unsure that this
will be an eligible expense, since the cost was not accounted
for in their annual budget prior to the pandemic.
So, Secretary Mnuchin, what advice would you give these
local governments that are unsure if a use for the coronavirus
relief funds will be deemed a qualified expense so we can get
this money spent?
Secretary Mnuchin. We will look into your specific question
and get back to you, but I will say that we have tried to give
as much flexibility as we can. And as part of additional
congressional authorization to move forward, we are inclined to
allow for additional flexibility on the money that has already
gone out to State and local governments.
Mr. Williams. Thank you, and we will get something for you
to look at.
Chairman Powell, I raised this issue with Vice Chairman
Quarles back in May, but I wanted to get your perspective as
well to make sure everyone at the Federal Reserve is on the
same page regarding business interruption insurance.
Forcing private companies to cover business interruption
claims for COVID-19 losses would be a terrible precedent of the
government stepping in and retroactively changing the terms of
an agreement between two private parties, and would decimate
the insurance industry. I have said before, in Texas we say,
``A deal is a deal.''
And the last time you were in front of this committee in
June, you mentioned you were aware of this issue as it relates
to fiscal stability, and I am hoping we could get a little more
substance on this issue since the Federal Reserve is involved
in insuring Federal institutions, including the insurance
companies that do not pose a risk for our financial systems.
So my question would be, can you please give us your
thoughts on forcing insurance companies to retroactively cover
business interruption claims?
Mr. Powell. I don't think I have had a conversation about
that since our last visit together in June, but let me check in
on the current situation and come back to you.
Mr. Williams. Okay. That would be great. Thank you.
And both of you have discussed the potential need for
another economic stimulus package to come through Congress. We
have done that today. However, at the moment, much of the money
that we allocated in the CARES Act and other aid packages has
not yet been spent. The nonprofit Committee for a Responsible
Federal Budget estimates that the government has allocated or
disbursed $2.2 trillion of the $4 trillion that Congress has
passed in COVID relief.
Mr. Secretary, you have been deeply involved in
negotiating, as we very well know, the next COVID-19 relief
package. And as we discuss spending new money, how would or how
should we be viewing the economy to ensure that industries in
most need of assistance receive it while the other money we
have already allocated makes its way into the system?
Secretary Mnuchin. I think we are in a very different
situation than we were last time. I think last time, the entire
economy was shut down and we had to act very quickly, and in
many cases, that required us to do things across-the-board. I
think this time it should be much more targeted to the
industries that are most impacted by this situation.
Mr. Williams. Thank you. And I want to thank you again for
your efforts and basically tell you, as somebody who is on Main
Street, the economy is pretty good right now. It is getting
better, and attitudes of people in startups are getting better.
I hope one day we can look at liability toward a lot of small
businesses and big businesses that could keep them from
growing.
So, thank you again for your efforts. We appreciate it.
And I yield back. Thank you.
Chairwoman Waters. Thank you.
I now recognize the gentleman from Washington, Mr. Heck,
for 5 minutes.
Mr. Heck. Thank you, Madam Chairwoman.
Chairman Powell, I want to discuss fiscal support today,
but before I do, I want to quickly address the announcement
that the Fed made to take steps to make the inflation target
more symmetric and emphasize the employment mandate, the new
framework that Dr. Foster referred to.
I am not at all exaggerating when I say this new framework
is the most important thing that has happened in monetary
policy, indeed in economic policy, in 40 years in this country.
It will have a bigger impact on absorbing heretofore
marginalized [inaudible] Especially among communities of color.
Your leadership in shepherding [inaudible] Needs to be
acknowledged [inaudible].
Chairwoman Waters. Excuse me. Mr. Heck, speak right into
the microphone so that we can hear you clearly.
Mr. Heck. I hope he was able to hear all of my comments.
Can you hear me now, Madam Chairwoman?
Chairwoman Waters. Yes.
Mr. Heck. Thank you.
Chairman Powell, thank you very much for the new framework.
At the outset of this pandemic you declared that, ``This is
the time to use the great fiscal power of the United States to
do what we can to support the economy and try to get through
this.'' Congress responded by passing the CARES Act, and
Congress continues to deliberate further fiscal support.
At your press conference on Wednesday, you said that the
Federal Reserve's projections for growth, inflation, and
employment were assuming more fiscal support. What size support
were you assuming?
Mr. Powell. Let me say that I think a big part of the good
economic news that we have had results from the fiscal support
that came with the CARES Act. So it deserves a lot of the
credit for keeping people spending and keeping business
confidence and household confidence high.
We don't agree on a forecast. Individuals make different
assumptions. I think something like--most private sector
forecasters are assuming that some kind of a package passes
sometime in the next few months, but there isn't any particular
number that I would give you that would come out of the Fed.
Mr. Heck. But is it not true, Mr. Chairman, that the Fed
did itself make projections as to growth and inflation and
employment? And if so, acknowledging that it assumed fiscal
support, there must have been some assumption about the level
of fiscal support.
Mr. Powell. Actually--
Mr. Heck. How else would you arrive at your projections?
Mr. Powell. Yes. I wish it were that simple.
The way we do it is we--what we publish is the individual
projections of the 17 people who vote or who are, sorry,
participants on the Federal Open Market Committee (FOMC), and
they are free to make whatever assumptions they need. And we
don't survey them on every little thing, but I would say most
assumed some fiscal action. But we didn't create a table, and
so I can't tell you exactly what was assumed, but fiscal action
underlies many, many current forecasts.
Mr. Heck. Then, let me try this a different way. What
happens to growth in employment if there isn't any fiscal
support and it doesn't materialize?
Mr. Powell. What has happened lately is that the economy
has proved resilient, both to the broader spread of the disease
over the summer in some of the southern and western States and
also to the expiration of the CARES Act benefits. So, we don't
really know what will happen.
I would just tell you what I think the risk is. As some
have pointed out, savings are very high, and that is because of
a number of things. Part of it is the CARES Act. But there are
still 11 million people unemployed.
So the risk is that over time, they go through those
savings, and they haven't been able to find employment yet
because it is going to take a long time to get--or it is going
to take a while to get 11 million people back to work. And so,
their spending will decline. Their ability to stay in their
homes will decline. And the economy will begin to feel those
negative effects at some time.
At the same time, the economy is recovering, and that is a
good thing. And it is very hard to have any certainty about the
path forward because we don't know which of those two forces
will dominate.
Mr. Heck. With all due respect, Mr. Chairman, unless you
are arguing that fiscal stimulus has no impact, then is it not
inescapable that if there is no additional fiscal support,
growth will be lower?
Mr. Powell. Yes. Certainly fiscal, and I have said that I
think it will likely be needed. I do defer to the
Administration and Congress, who actually have the
responsibility for this. But I think that it is likely that
more fiscal support will be needed.
Chairwoman Waters. Thank you. The gentleman's time has
expired.
Mr. Heck. Thank you, Madam Chairwoman.
Chairwoman Waters. I now recognize the gentleman from
Arkansas, Mr. Hill, for 5 minutes.
Mr. Hill. Thank you, Madam Chairwoman.
And of course, thank you, Secretary Mnuchin, for being with
us here today.
And Chair Powell, it is terrific to see you.
I want to associate myself with the remarks of the ranking
member, who outlined really the outstanding leadership we have
obtained from the Treasury and from the Federal Reserve,
particularly in the early days of fighting the virus. And we
appreciate your commitment to our country, to restore the
health of the American people, and renew our families' belief
in the American Dream, and in your own ways, to rebuild the
American economy.
I want to talk for a minute about this issue for smaller
businesses, and I plan on signing the discharge petition in the
House today to move Congressman Chabot's bill to the House
Floor, which extends the PPP program and clarifies the
forgiveness aspects of that.
This is something that should have been done at the end of
July, and I was pleased that last week, Democratic Members of
Speaker Pelosi's caucus were objecting to her leadership, or
lack thereof, in trying to negotiate this COVID package. I hope
my Democrat colleagues will join me in signing that discharge
petition, because the PPP extension, as Secretary Mnuchin
outlined, is a key component to having the tools necessary for
the small business recovery.
Second, in my view, the proposal by Mr. Rubio that is in
the Senate bill on the 7(a) loan program is critical because it
allows us to take this embedded loss of the last 6 or 8 months,
or that we think is coming, and put it on a 20-year am at a 1
percent rate as an SBA product. And it is a much better
solution than the emergency loan program that the SBA has used
during this pandemic, which is really geared towards a
hurricane and not to a national pandemic.
But the third point is the Main Street Program, and both of
you know my views on this as we have talked about it in an
oversight commission hearing, as well as privately. On Friday
at 1 p.m., in a typical Washington, D.C., fashion, the Fed
released its frequently asked questions and dumped them out to
the public on Friday afternoon, that you would not pursue this
asset-based lending type approach for a different Main Street
term sheet. Mr. Barr did a good job describing that.
I really think that can be done, Chairman Powell, to
companies on sound footing, to companies that are not able to
reach credit traditionally under reasonable terms, and in the
concept of a backstop.
And so, I want to press both of you that while it doesn't
fit the Main Street term sheet you have today, that took 4
months to stand up, I still believe that asset-based lending to
a solvent company is important.
And you had a key component, another Washington key
component in the frequently asked questions, where you said,
``at this time.''
So I would urge you to reconsider your position on asset-
based lending and offer you each an opportunity to comment.
Mr. Powell?
Mr. Powell. We have taken a very close look at it, as you
know, and as the Secretary indicated, but we are happy to
continue the conversation, and we will do that with you.
Mr. Hill. I really do believe it can be done in the right
way. And I think the three things I commented on, the first
two, the 7(a) program and the PPP loan where I addressed this
lower loan size that the Chair mentioned, but I do believe
there is a solvent niche out there of portfolio lending that
can be done on a sound basis that would offer some liquidity
for hospitality, particularly not CMBS per se, but portfolio
lending where they have this gap that we saw after 9/11 and we
saw after the financial crisis of very slow increases in
business travel.
Secretary Mnuchin, you commented that you would like
Congress to give you authority to incur risk as it relates to
the $500 billion in funding for the Exchange Stabilization
Fund, or particularly the 454 that was not related to airlines,
and that you proposed to reprogram that money for other uses.
But when we had a discussion of this in the oversight
commission, we have issued in our fourth report that we don't
believe that you need any additional congressional authority to
reprogram that and take on additional risk.
Could you comment on that please?
Secretary Mnuchin. Let me just be clear. I don't think we
need authorization to take on additional risk. And let me
clarify, I think on the Main Street loans, in general, we will
be taking losses, because I think this is basically being
underwritten on pre-corona EBITDA.
What I was suggesting is that we would like to spend that
money on other areas of the economy that could be better
served--kids, jobs, more PPP, SBA long-term loans--and that,
unfortunately, we do need congressional authority to use it in
other areas.
And again, I think, as you know, we have a lot of money
left over in the PPP that has been appropriated by Congress,
that with simple legislation, could allow many hardworking
small businesses to get a second loan.
Mr. Hill. Thank you both for your leadership.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you.
I now recognize the gentleman from California, Mr. Vargas,
for 5 minutes.
Mr. Vargas. Thank you very much, Madam Chairwoman. I
appreciate it.
I want to thank the Secretary, of course, and also the
Chairman for being here today. I appreciate your testimony very
much.
I have to say I have heard some pretty tortured language
and tortured logic from some of my colleagues today. One Member
said that we are not bailing out businesses, ``compensation for
a regulatory taking.'' That sounds a lot like, ``use my words
against me,'' when you say you won't vote for a Supreme Court
Justice in an election year for President. The reality is when
you talk in absolutes, you get into these situations where
logic gets twisted to try to fit things.
And the other thing I heard today is that Congress should
pass a second CARES Act. We did that. We passed it. It is
called the Health and Economic Recovery Omnibus Emergency
Solutions (Heroes) Act. It is languishing over in the Senate.
Then, I heard another colleague say we should do what the
Senate did and pass what they did. They didn't pass anything.
The Senate didn't pass a thing. They tried to pass something,
but nothing passed.
The other thing I guess I heard today also was a pretty
rosy picture of the economy. And I don't want to put words in
people's mouths, but, Mr. Secretary, I believe you said that
the economic recovery was strong.
I think that tens of millions of Americans would disagree
with that and, in fact, would say that the stock market is not
the only economy. We have 11 million Americans who are still
out of work, who lost their jobs, more than in the financial
crisis. So, I don't think that they would agree that we have
had this strong recovery.
I do agree with what the Chairman said, that we won't get a
full recovery until everyone feels that they are safe from this
virus, and so I think it is very important that we do
everything we can to defeat it. But unfortunately, up to now, I
think the virus has been in charge.
So, I want to ask this. I have been watching what has been
happening in Europe. It seems like they are starting to get a
second wave. I am very concerned that we may have a second wave
in our own country, and I am not sure that we are prepared for
this.
I also went back and did a lot of reading on the Spanish
flu and saw that their second wave was the more devastating
one, not the first one, but the second wave of the Spanish flu.
Could you comment, either one of you, on how prepared we
are? What is our plan in case this thing comes roaring back?
Secretary Mnuchin. I would just first comment on--I did say
there is a strong recovery, because when you close the economy
and you reopen it, it is strong, but there is still more work
to do.
As it relates to being prepared--and again, I am not a
health professional, although I have sat on the task force--I
think we have made major progress on vaccines, on virals, on
testing, and, I think, on PPE. So, I think we have done a very
good job at being prepared for the virus.
Mr. Vargas. But do we have a plan? Do you have a plan in
case it comes back? In fact, a virus usually has some
seasonality to it, and you would expect in the winter for it to
come roaring back. We have seen that before. If it does come
back--assume it does--do we have a plan? Does the
Administration have a plan?
Secretary Mnuchin. First, from an economic standpoint, we
do have a plan for the economy now, and that is why we want
more congressional approval.
As it relates to health, yes, the Administration and the
task force does have a plan. It is executing that plan. And a
major component of that plan is the vaccine development, which
is making great progress.
Mr. Vargas. Thank you.
Mr. Chairman, if I may ask you, you said that until people
feel that they are not at risk, the economy won't come back.
Could you elaborate a little more on that?
Mr. Powell. Sure. There are parts of the economy that
involve people getting very close together in groups, and that
is travel, hospitality, entertainment, things like that. And I
think people will--not everybody, but some part of the
population will be reluctant to continue in those activities
until they feel confident that it will be safe, that they won't
get sick from doing so.
And that is not most of the economy; that is a piece of the
economy. It is a reasonably substantial piece of the economy,
where a number of people, millions of people are still not
working, and it will probably take some time for them to get
back to work.
So, getting them back to work will depend on continued
progress on the medical front, including, ultimately, a
vaccine.
Mr. Vargas. I think my time has expired, and I yield back.
Thank you very much.
Chairwoman Waters. Thank you.
I now recognize the gentleman from Georgia, Mr. Loudermilk,
for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman.
Secretary Mnuchin and Chairman Powell, thank you for being
here. And let me also echo the thanks for early on in this
pandemic, especially with the PPP program, the way our offices
worked together and your offices worked with the banks in our
communities to tailor this thing to where it would actually do
something for the small businesses.
And as a result of that, one of the small banks in my
district that only has two branches ended up making more PPP
loans than one of the major national banks did nationwide. And
that is just one of the many successes of the PPP, but it is
because of the engagement there.
I have two questions, but first, I would like to respond to
something my good colleague from California just brought up
about the recovering economy. I think there are areas of this
country where the economy is recovering strong, and the State
of Georgia is one of those. Our revenue reports came out just a
little over a week ago that tax revenues for 2020 are 7.7
percent higher than 2019. And it is because instead of using a
heavy-handed government putting long-term restrictions on the
people, we decided to trust the people that they would be safe
and secure, and we opened our economy.
So I think if other States would like to see that type of
economic recovery, maybe they should address the way that their
States are being governed.
I know the Federal Reserve is looking at ways of broadening
the Main Street Lending Program, which I think we all realize
needs to be broadened. But there are some areas I would like to
see us take a look at, and one of those industries that is
interested in Main Street lending is specialized consumer
finance firms, which are nonbanks that purchase credit card
receivables from card-issuing banks and they securitize those
assets, which enables consumers with subprime credit to access
a credit card, which are some of the most vulnerable in society
right now. But the earnings before interest, taxes,
depreciation and amortization (EBITDA) requirements prevent
them from obtaining a loan.
Chairman Powell, would you consider modifying Main Street
lending to allow these firms to access this program?
Mr. Powell. I would have to look at that in particular.
EBITDA is a very standard cash flow measure. If you are going
to make a cash flow loan in our markets, you are going to look
at EBITDA. The alternative is something asset-based. And I
don't know these companies to know exactly what we are talking
about, but we are happy to take a look.
Mr. Loudermilk. I will make sure that our staff engages
with yours to give you some of the folks who are looking to do
that, and I think it would be wise.
Another issue, back to the PPP program, Mr. Secretary, is
that the forgiveness of the PPP loans is very cumbersome, and
it is putting some of the banks, such as the one I had brought
up earlier, Vinings Bank, into a situation where they are
keeping those loans on their books longer than they had
intended to.
Is there something that we can do to streamline this
forgiveness program so it is less cumbersome, so we can start
getting those loans off the books of the small banks to open
them up to make other, more traditional business loans?
Secretary Mnuchin. We have tried to streamline the process
for the smaller loans, as you outlined. I know that there are
some proposals in Congress, and as part of legislation, we have
worked with both committees on that, making sure we have the
right balance of protecting for fraud with simplification.
Mr. Loudermilk. Okay. And I assume that you would be
willing, if Congress took some action there, to work with us on
that.
Thank you both. I know these have been challenging times,
but I think the Administration has responded admirably and
well, considering the severity of this crisis. And I think we
just--if we keep on track and keep pushing forward, we can get
through this and make our economy as strong as it was before,
if not stronger.
And, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you.
I now recognize the gentleman from Texas, Mr. Gonzalez, for
5 minutes.
Mr. Gonzalez of Texas. Thank you, Madam Chairwoman.
And thank you, Chairman Powell and Secretary Mnuchin.
Folks, I represent many small business hoteliers in my
district, many of whom are first- and second-generation
Americans who have worked hard to achieve the American Dream.
As a result of COVID-19 and subsequent travel shutdowns, and
through no fault of their own, family-owned and operated hotels
in Texas and across the country are facing an unimaginable
economic crisis with no ability to access a lifeline through
the Main Street Lending Program.
Despite repeated requests from Congress, including my own,
the MSLP facts released on September 18th state that conditions
did not warrant changes to allowing lending to asset-based
borrowers. There is nothing else for these people to turn to.
I want to make sure I understand your message to them.
Right now, we have money on the table, programs that are not
being used, and programs that are being used that are not quite
compliant with the CARES Act, and programs that have been
drained of funding because they worked. Your position is that
these businesses should be allowed to fail, that hardworking
Americans should lose their livelihoods, and that you will do
nothing to help them.
You want to carefully follow the law, right, on the CARES
Act? Well, we passed the CARES Act, and to the extent that you
are not in compliance with the programs included there, it is
time to get that done. Failure to do so would not constitute
following the law. You either are or you are not complying with
the law. And you do not have programs that comply with the
CARES Act distribution of funding.
We may be in a crisis now, but I am sure you can imagine
what will happen after the crisis when we start picking up the
pieces and scrutinizing the actions of your agencies. Right
now, we are using the powers given to you for explicitly this
purpose, and you are using the powers for explicitly this
purpose for both you, and so you can help the country.
Businesses need a lifeline, they are not even asking for
bailouts, businesses like the ones I am talking about. Lending
them money for 10 or 20 or 30 years at a low interest rate
creates the liquidity that the markets need. And recognize that
if all commercial properties start defaulting, we are looking
at another wave of a crisis, aren't we? And what are we doing
to prepare now and help them now and do the work now?
Secretary Mnuchin. I would first say I think we are
following the law, so let me just be clear on that.
The second thing I would say is that we want to help the
types of businesses that you are talking about. In many cases
they need grants and not loans. But as part of additional SBA
appropriations, we very much support long-term loans,
particularly for the types of businesses that you are focused
on.
Mr. Gonzalez of Texas. What specific loans do you have
available for folks like these small hoteliers?
Secretary Mnuchin. Again, we support additional money to
small hotels because that is what they need. Additional SBA
loans are something that we have looked at as well as PPP
loans. In many of the cases, these small hotels do not fit into
Main Street because they already have additional--they already
have other indebtedness, and in many cases they are either not
allowed to take additional loans or they are too levered to
begin with, to qualify.
Mr. Gonzalez of Texas. So, the small ones that do fit in,
you are saying that the SBA has a program for them?
Secretary Mnuchin. No, what I said is as part of additional
legislation, the Small Business Committee has proposed
additional money, long-term money for small businesses as part
of a new program, and that is something that we have looked at
and we would support.
Again, many of the small hotels that you are talking about
don't have any revenues.
Mr. Gonzalez of Texas. Right.
Secretary Mnuchin. So, those hotels would qualify for
additional PPP loans. There is over $130 billion that has been
appropriated by Congress that we just need authorization to
use, and that would be the best solution for them.
Mr. Gonzalez of Texas. Thank you. I would just ask that we
stay cognizant of these folks. They are good Americans. They
are hardworking Americans. They are an important part of our
economies, both locally and nationally, and they deserve our
attention. Thank you very much.
Chairwoman Waters. Thank you very much.
I now recognize the gentleman from Tennessee, Mr. Kustoff,
for 5 minutes.
Mr. Kustoff. Thank you, Madam Chairwoman.
And I would like to thank the witnesses for your leadership
during this crisis. I think you have both displayed tremendous
leadership.
Secretary Mnuchin, if I could, we have talked a lot about
the PPP program today and its success, and the ranking member
talked about the 51 million jobs that it is estimated that it
saved, with the caveat that maybe 12 million rural jobs in
rural communities that it saved.
If I could, following up on what Mr. Loudermilk asked about
a few moments ago as it relates to the forgiveness, what I have
heard from small businesses throughout my district, and
frankly, throughout the State of Tennessee, is that they are
very thankful about the PPP; it literally saved their
businesses. But there is a concern about the complexity of the
forgiveness.
And so my question is, have you considered administratively
forgiving certain loans, say, loans of $150,000 or less, again,
through administrative action?
Secretary Mnuchin. We have considered that. We don't think
we have the authorization to do that in the context of the law.
And we have tried to make it very simple for small businesses.
But again, there were some proposals out of Congress that just
said we should automatically forgive all of those loans, and to
do that, we would need congressional action.
Mr. Kustoff. So your interpretation is that you don't have
the authority to administratively forgive those certain loans,
again, the smaller loans? I am using $150,000 or less.
Administratively, you don't have the authority to do that?
Secretary Mnuchin. We think we have the obligation to get
the documents, have them fill out what is an easy form, and
have the ability to audit those. I think, as you know,
unfortunately, there has been some fraud, and we're working
with our IG on that.
But, no, we don't think it would be appropriate, and we
don't think we have the authorization to do a blanket
forgiveness across-the-board.
Mr. Kustoff. If I can, again, we have heard from people, I
think all of us have, about how PPP saved their businesses,
kept their employees on the payroll. And, frankly, you all
deserve credit for crafting that. And I do think, frankly, that
Congress deserves credit for acting swiftly and in a bipartisan
manner.
The one criticism I have heard from businesses,
specifically in my district, is that they literally could not
compete--some--with the enhanced unemployment benefit, that it
was set too high. And so maybe in an area like Tennessee or
Mississippi or Arkansas, maybe it was generous in other States.
Maybe it was not. I don't want to get ahead of the
negotiations, but if there is an additional enhanced
unemployment benefit in the next package, is there a way to
somehow tie that to locality?
Secretary Mnuchin. Yes. At the time, we knew that there
were certain places where it would be too high, and certain
plaes where it would be too low. We thought the fair way of
doing it was one number across-the-board.
As part of the President's executive action, he has now
authorized that to go forward with up to $400, $300 if the
State doesn't contribute, and we have proposed as part of
additional legislation having it at something like 75 percent
of wage replacement.
Mr. Kustoff. And would that be uniform across all 50 States
or would it be based somehow on locality?
Secretary Mnuchin. Ideally, it would be each State would
take some time for them to implement that technology, but that
it would be capped on 75 percent of previous wages.
Mr. Kustoff. Thank you, Mr. Secretary.
One more question for you, if I can, and I am going to
touch on something that I don't think has been asked today, and
that is on phase one of our agreement with China that was
executed earlier in the year. Obviously, we know we faced a
pandemic. Are you right now confident that China can meet its
commitment to purchase $36.5 billion in agricultural products
this year?
Secretary Mnuchin. I believe they are on track for that,
and Ambassador Lighthizer and I are monitoring that very
carefully.
Mr. Kustoff. Thank you, Mr. Secretary.
With that, I yield back my remaining time.
Chairwoman Waters. Thank you.
I now yield 5 minutes to the gentleman from Florida, Mr.
Lawson.
Mr. Lawson. Thank you, Madam Chairwoman. I would like to
thank you and Ranking Member McHenry for hosting this hearing
today.
And I would like to welcome the gentlemen to the meeting.
It has been very good hearing you all speak this morning.
One of my colleagues, Representative Taylor from Texas,
joined me in writing a letter to both of you regarding the
impact of COVID-19 on the commercial real estate market, and I
heard some of it talked about earlier.
The commercial real estate market continues to be hit hard
due to the economic shutdown that has resulted in store
closings and halted travel. The COVID-19 pandemic has turned
the $4 trillion commercial real estate financial market upside
down.
In June, I was joined by Representative Taylor and over 100
of our colleagues in requesting that the Department of the
Treasury and the Federal Reserve urgently consider targeting
economic support to bridge the temporary liquidity deficiencies
facing commercial real estate borrowers created by the
unforeseen crisis. We believe that this--and still do that the
Federal Reserve has the ability to bridge the gap through
various Facilities to help many businesses survive the economic
disruption.
However, on Friday the Federal Reserve released an update
on the Main Street Lending Program, which stated that
conditions do not warrant changing this to allow the lender to
assist the basic buyer.
Would you all care to comment on that for me?
Secretary Mnuchin. First, let me say, again, Chair Powell
and I both agree with you that the commercial real estate
market has an issue.
I just want to clarify, when people talk about asset-based
lending, they traditionally don't include real estate in that.
The real estate market is its own market, so that wouldn't
necessarily be part of an asset-based program.
There are structural problems. I know some people in the
House tried to work on a proposal of preferred equity so that
it could be going below the existing.
But Chair Powell and I will continue to work on this. It is
an issue. We don't have a solution. We wish we did.
Mr. Lawson. Okay. Does Chairman Powell want to comment,
too? Because I was on a call with him several weeks ago about
this issue, along with Representative Taylor.
Mr. Powell. Yes. And both of us are very familiar with the
letter that you sent and have studied it carefully and really
looked hard at how we can reach the problem we are talking
about.
And a lot of the problem just isn't with commercial
mortgage-backed securities. Those loans contain a provision
that says you can't incur additional debt. The Secretary
referred to a way to get around that, but that wouldn't involve
the Fed. It would require legislation.
And we do understand and appreciate that this is a
significant problem in the economy, and we can keep looking for
solutions. We don't really have a solution, though, with the
tools we have.
Mr. Lawson. And I understand that we don't have a solution.
I think one of the things that really bothers me as a
lawmaker, is when we turned back about $130 billion in PPP
funds, and then you find out that all of these people who are
suffering tremendously, and they have coming up to maybe
releasing something like a large group of employees who depend
on them.
I had the opportunity to talk to Chairwoman Waters about
some of the things that were happening even in her area out in
California. And I am glad that you all are considering it and
that we need legislation. I don't know how quickly we can get
legislation through. I was certainly hoping that it could be
included in negotiations on the HEROES Act and what is coming
out of the Senate, but I know the Senate, which was stated
today, still hasn't passed anything.
So I don't have much time left, but I am glad that you all
were continuing to keep that at the forefront, because a lot of
these employees are just everyday people who need help.
And with that, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you.
I now recognize the gentleman from Indiana, Mr.
Hollingsworth, for 5 minutes.
Mr. Hollingsworth. Good afternoon.
First to you, Chair Powell. I was recently excited by the
news about creating a more symmetrical inflation target. I
think that was great news. I know it is something that you and
I had discussed at length privately, as well as publicly at
these hearings. I am sure it had a lot of discussion and a lot
of research underpinnings, and it wasn't just my annoyance that
led to it. But, nonetheless, I really appreciate you doing that
and I think it is going to be positive for the Fed and for the
American economy going forward.
Specifically, I also wanted to turn to the temporary
exclusion of Treasuries and deposits at Federal Reserve Banks
from the SLR that was done through March of 2021, on some
concerns that increased reserves during this period of time
didn't want to count against them during SLR, but it was not
extended to, nor does it flow through to the G-SIB size
indicator. I was wondering why that was the case, and is there
any further discussion or dialogue about extending that through
the G-SIB size indicator?
Mr. Powell. I have to go check on that for you. I am not
aware of any of those discussions.
Mr. Hollingsworth. Okay. Great. If you wouldn't mind
checking on this, because I think that is really important to
us to make sure that we see that flow through, given that in
the fourth quarter, I think many of our largest institutions
are going to begin to see those impacts.
On to you, Secretary Mnuchin, what you said a few minutes
ago. There has been a proposal around Congress potentially
talking about preferred equity to some of our real estate
borrowers that are most troubled. That, to me, is troubling,
that proposal, and I think you said it doesn't feel like there
is a good solution. Could you talk about why that isn't a good
solution?
Secretary Mnuchin. Ideally, we would rather lend as debt
and not do preferred equity.
Mr. Hollingsworth. Evaluation issues, government ownership
position issues, how do you get paid back issues, those sorts
of things?
Secretary Mnuchin. All of the above. Exactly.
Mr. Hollingsworth. Exactly.
And one of the things that I want to emphasize is that
there is real distress in this community, there are real
challenges in this community, but the longer that we continue
to talk about solutions that aren't real solutions, I think the
longer it will take to get to a legislative and administrative
fix that will provide a real solution to those who are hurting
across my district, across my State, and across this country.
So, I appreciate your clarity on that.
With that, I will yield back.
Chairwoman Waters. Thank you.
I now recognize the gentlelady from Michigan, Ms. Tlaib,
for 5 minutes.
Ms. Tlaib. Thank you so much, Madam Chairwoman.
And thank you both so much for being here.
One of the questions or some of the basic ones I just want
to review with both of you, Chairman Powell and Secretary
Mnuchin, what do you think your primary role is during this
pandemic?
And I will start with you, Chairman Powell.
Mr. Powell. We are here to serve the American people.
Ms. Tlaib. It is to stabilize the economy?
Mr. Powell. That is a big part of it right now, yes.
Ms. Tlaib. How about you, Mr. Secretary?
Secretary Mnuchin. Yes, that's correct, and to
operationalize what are obviously all of the responsibilities
that the Treasury--
Ms. Tlaib. Like, prevent an economic collapse, right? You
both agree that is kind of a--
Secretary Mnuchin. Yes, for starters.
Ms. Tlaib. Yes. No, I hope so, too.
I am going to start with you, Chairman Powell. Every time I
have asked you about State and local governments, you have
insisted there is nothing that the Fed can do for States and
cities in distress. But you did create a Municipal Liquidity
Facility (MLF) to apparently do just that. However, the program
is pretty restrictive. Is it true that only the State of
Illinois has applied?
Mr. Powell. No. We have done two loans. And of course, that
Facility has resulted in $250 billion of borrowing in the
private sector, where there was none taking place before the
Facility was announced.
Ms. Tlaib. Do you think State and local government going
bankrupt would create instability in our economy?
Mr. Powell. I think that is an issue that is outside my
bailiwick.
Ms. Tlaib. So you don't think it is an integral part to
ensure that State and local government in the public sector is
stabilized and will not go bankrupt like the City of Detroit
did?
Mr. Powell. States can't go bankrupt. They don't have a--
there is no means for them to. Cities, of course, can, under
Chapter 9.
Ms. Tlaib. Yes. The City of Detroit, when they went
bankrupt, there was a huge--did you think there was an impact
in the economy there?
Mr. Powell. Yes.
Ms. Tlaib. I think so, too.
My district really hasn't benefited from the program, and
one of the things that I want to point out to you, Chairman
Powell, is you don't have to lend with penalty rates to State
and local government. This regulation that you have there about
penalty rates, that wasn't created by statute, correct? That
was created by you all internally?
Mr. Powell. It is in our regulation and in our practice.
Ms. Tlaib. But why not remove the penalty rate when there
is heightened unemployment or when the State and local
governments are at risk?
Mr. Powell. What that Facility has accomplished is it has
opened up the private market. So, State and local governments
are borrowing in record amounts at record low yields, and that
is across the yield curve and it is in various--
Ms. Tlaib. Only two States applied, correct?
Mr. Powell. Excuse me?
Ms. Tlaib. Only two States have been able to qualify under
the MLF program?
Mr. Powell. Yes, but they are all borrowing in the public
markets--
Ms. Tlaib. How many cities?
Mr. Powell. They are borrowing in the public markets at
much cheaper rates, which is at very cheap rates.
Ms. Tlaib. Okay. But, Chairman Powell, what I understand is
for corporations, the Fed supports bonds within a 5-year
maturity. Do you think corporations in debt are more important
than local municipalities? Because I understand theirs is 5
years, and you have it for what, 3 years for local government?
Mr. Powell. Yes. State and local governments generally are
not allowed to borrow to finance deficits. And so there is--
what it is, is their borrowing is for liquidity. And there is a
part of the market which is zero to 3 years that is about
liquidity, and that is where we have been willing to lend.
But there has been a lot going on, longer-term issues.
Twenty-year bonds and 30-year bonds have been issued. And that
is because of our backstop. Our Facility is performing its
backstop function, and that has enabled the private market to
work very well to serve State and local governments.
Ms. Tlaib. Yes. I don't think--honestly, just looking at
what happened in the City of Detroit, I am really worried that
we are not being flexible enough, that we are not able to
accommodate for the fact that these State and local
governments--you know that for much of the policies from
within, to stabilize the economy, we have to uplift and make
sure that the communities are protected. So, I would recommend
that you check out the bill that I have, the Uplifting Our
Local Communities Act. I really would appreciate that.
Secretary Mnuchin, we have to prevent an economic collapse,
right? This is a huge issue. This is probably even deeper than
the recession that we went through.
Yes or no, do you believe another stimulus check could help
stabilize the economy?
Secretary Mnuchin. I do.
Ms. Tlaib. However, you have been on record for not
supporting the economic package that we passed in May, that
included another round of stimulus checks for millions of
Americans who are right now unable to afford their rent and so
forth.
Can you explain what your position there is? Because I
think the American people are a little confused. Does the
Administration support another $1,200 stimulus payment?
Secretary Mnuchin. The Administration does support another
stimulus payment.
Ms. Tlaib. But you are willing to go ahead and support
within the Heroes Act that payment and push back on what I call
the, ``let them go bankrupt bill,'' that the Senate has
proposed?
Secretary Mnuchin. Let me just say I take great pride that
the last two bills we did passed with overwhelming bipartisan
support. We obviously can't pass a bill in the Senate without
bipartisan support. And our job is to continue to work with
Congress to try to get additional help to the American public.
Ms. Tlaib. I think you need to be very clear with the
Senators, Secretary, really clear that direct payments to
individuals is critical to preventing an economic collapse in
our country.
Chairwoman Waters. Thank you very much.
We are going to move to the last Member who will be able to
raise questions. Both of our guests have a hard stop at 12:30,
and we are going to honor that.
I now recognize the gentleman from North Carolina, Mr.
Budd, for 5 minutes.
Mr. Budd. Thank you, Madam Chairwoman.
And Secretary Mnuchin, thanks for being here.
To date, less than 1 percent of the PPP loans nationwide
have been processed through the SBA's forgiveness portal. Many
small businesses, these PPP borrowers, are waiting to see if
Treasury or Congress is going to act on some sort of bipartisan
forgiveness proposals that we see in the House and the Senate.
Now, the current one, as I understand it, the current
process is really confusing for a lot of these small business
owners, and it is not what they expected when they first took
out these loans.
The current process is also a real burden on community
banks that have a lot less resources than our large banks.
The time for such a streamlined process to be put in place
was a long time ago. It was weeks ago. But due to this delay,
the situation with banks and borrowers is getting more and more
urgent.
So under your current authority, would you and SBA
Administrator Carranza be able to implement a streamlined
process as outlined in the Paycheck Protection Small Business
Forgiveness Act?
Secretary Mnuchin. I'm sorry. I would have to look at the
specifics of the Act and get back to you. But I believe the
answer is that we don't have the authority to implement it the
way it is in the Act.
But, again, I would just say the forgiveness portal is
open. We are encouraging small businesses to apply. And we are
working with SBA to make sure that they can process those as
quickly as possible and we could provide small businesses tools
to make it easy for them.
Mr. Budd. Mr. Secretary, I am glad that the portal is open,
and I am assuming that it is working. Do you consider it
currently to be a streamlined process? And is there anything,
any improvement you could do within your authority?
Secretary Mnuchin. We developed an easy form, so we tried
to make it significantly easier. And, again, we are happy to
work on a bipartisan basis with Congress if they want to pass
legislation that creates blanket authority for forgiveness.
Mr. Budd. Thank you, Mr. Secretary.
Chairman Powell, thanks again for being here. At your last
appearance before the committee you stated that our banking
system is robust and it has been a source of strength
throughout this pandemic. Specifically, you cited the
unprecedented influx of deposits, forbearance measures taken by
banks, and the continued ability to lend as evidence of the
strengths of the U.S. banks in the COVID-19 environment.
Now, while many industries have understandably needed
government support to continue operating during the forced
economic shutdown, my view is that the financial system has
been a crucial partner for the Fed and Congress in facilitating
relief to businesses and to households.
I bring all this up because I have heard some call the
recent actions taken by Congress and the Fed--they have
actually called it, ``a bailout for banks.'' So my question to
you is simple: Has there been a bailout for banks during COVID-
19?
Mr. Powell. No, I wouldn't say that there has been.
Mr. Budd. My office keeps hearing from companies that are
unable to secure short-term financing, but they are using their
working capital financing to run their operations. They were
too large to take advantage of the PPP, and they don't have
access to the capital markets.
So, how could the Fed use its Section 13(3) authority to
provide assistance to these companies, many of whom provide
services and supplies all up and down the supply chain that are
critical to our nation's economy? What can the Fed do to
provide assistance to them?
Mr. Powell. On working capital, in looking at the idea of
an asset-based Facility, we did a good deal of work in that
sector, and we came away thinking that working capital
financing was pretty broadly available. So I am surprised, and
it is not a good thing that I am hearing that it is difficult
for some. So, we will go back and look at that.
Mr. Budd. Chairman Powell, is there something that I should
relay to these mid-sized businesses, that maybe they haven't
found or they are not aware of that they should look to for
support?
Mr. Powell. We have the Main Street Facility, of course,
which has three different portals--or three different loan
products--and all companies are welcome to borrow there. We
have, as I mentioned, growing interest there. There is the PPP
program--
Mr. Budd. Mr. Chairman, do you think there might be a gap--
Mr. Powell. --the Paycheck Protection Program.
Mr. Budd. I'm sorry. Do you think there might be a gap
between the PPP and the Main Street Lending Facility, where
some could get caught sort of in the lurch?
Mr. Powell. We have been looking for gaps, honestly, and we
did look at the working capital, at working capital and
finance, and did not see a big problem to solve there. But we
will go back and take another look at that.
Mr. Budd. Thank you, Chairman Powell.
I yield back.
Chairwoman Waters. Thank you very much.
I would like to thank our distinguished 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 12:23 p.m., the hearing was adjourned.]
A P P E N D I X
September 22, 2020
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