A $500 billion program intended to provide businesses and state and local governments with low-interest loans and grants during the coronavirus crisis has mostly benefited large companies so far, a congressional oversight group said Thursday.
Congress authorized the relief program in the CARES Act in March and put the Treasury Department and the Federal Reserve Bank in charge of disbursing the funds. The program includes $454 billion for emergency lending facilities targeting cash-starved companies, nonprofits and state and local governments, as well as $46 billion for airlines and national security contractors
The latest report from the Congressional Oversight Commission says that the Fed has announced how it plans to use $195 billion of the funds in five lending areas, part of an effort that could support $2 trillion in loans. But most of the lending facilities are not operational, and only $6.7 billion of the total package has been spent so far.
Bond market rebound: The Fed’s plan to buy corporate bonds has boosted the market, as investors snapped up corporate debt now backed by the Fed. But the market rebound seems to be the only significant outcome from the program so far, leaving smaller businesses and governments out in the cold.
“In some areas of the economy, such as the ability of larger companies to issue debt to continue operations, the agencies’ actions have had a clear and powerful impact,” the commission wrote. “But there is less evidence that the actions of the Treasury and the Federal Reserve have been as beneficial for small and mid-sized businesses and state and local governments.”
The commission questioned whether the Fed should continue to purchase corporate debt, given the more robust health of larger businesses, and suggested that the central bank should focus more on other entities that need help.
Little help for governments: The lending program targeting state and local governments, called the Municipal Liquidity Facility (MLF), has only recently begun to operate and has made just one loan so far. The Treasury is putting $35 billion into the fund, which will back as much as $500 billion in lending by the Fed. But the only loan so far has been in Illinois, where the Fed purchased $1.2 billion in notes.
And a key small business program has only just begun: The Fed is using $75 billion from the Treasury to back as much as $600 billion in lending to small and mid-sized businesses, defined as those with as many as 15,000 employees or up to $5 billion in annual revenues. But the Main Street Lending Program just started taking applications this week and has yet to extend any loans.