WASHINGTON – With the economy still in the pandemic’s grip, the Federal Reserve is facing a decision on whether to stretch an emergency lending program in a way that could bring more risk for the government and taxpayers. Lawmakers are pressing the central bank to deliver more aid to struggling small and mid-sized businesses.
Many lawmakers are asking the Fed to expand its lending to small and midsized businesses, by allowing companies to offer assets such as commercial properties as collateral. They warn that hard-hit hotels and shopping malls could suffer a huge wave of foreclosures, hurting local communities and jobs across the country.
“Inaction would be disastrous for taxpayers, for employees, for communities,” Rep. Van Taylor, a Texas Republican who is a leader of the bipartisan effort, said in an interview. He said the point is to save the jobs of the anxious hotel housekeepers, shift supervisors and other employees he’s heard from, most of them minorities.
The decision is on the doorstep of Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin. Using money from Congress’ coronavirus relief package, the Treasury Department is guaranteeing the Fed’s lending programs – hundreds of billions each – to corporations, smaller businesses, and state and local governments.
Powell and Mnuchin have said they’re considering the option.
But some critics say the lending expansion would be risky and might help big investors in the companies rather than the workers.
The Fed faces a sort of Goldilocks dilemma over risk: How much is just right? With the prospect of continued economic hardship and severe unemployment on the near horizon, the central bank has to balance the benefits of government aid against the risk of losses to taxpayers.
Lawmakers are pressing for a broader approach in part because the Fed’s Main Street lending program for small and midsized businesses, to which it’s committing up to $600 billion, has had a slow start, with only modest borrower interest. They want the Fed to allow companies to qualify based on assets such as commercial properties, rather than measures of financial condition.
