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Treasury moves to end several crisis-era programs, drawing pushback from the Fed

The Treasury Department is looking to extend a handful of the Federal Reserve programs used to get markets through the early days of the coronavirus crisis but is going to end several others that expire at the end of the year.

Among those that Treasury Secretary Steven Mnuchin asked the Fed to continue for another 90 days are programs that provided short-term “commercial paper” loans to businesses, as well as another for money market functioning and a backstop related to the Paycheck Protection Program.

However, Mnuchin also asked that other programs that were supported by Treasury capital come to an end for now. They include two facilities that bought corporate bonds as well as the Main Street Lending Program, which was targeted towards small- and medium-sized businesses.

U.S. Treasury Secretary Steve Mnuchin speaks during a news conference to announce the Trump administration’s restoration of sanctions on Iran, at the U.S. State Department in Washington, September 21, 2020.

Patrick Semansky | Pool | Reuters

The programs were set to expire at the end of the year. They were instituted in early March to open markets that had frozen during a panic-selling frenzy as fear over the pandemic grew.

But they were sparsely used for the most part and the subject of some criticism, particularly the Main Street facility.

“While portions of economy are still severely impacted and in need of additional support, financial conditions have responded and the use of these facilities has been limited,” Mnuchin said in a letter to Fed Chair Jerome Powell.

Mnuchin nevertheless said that “in an abundance of caution” he would like the Fed to keep alive the Commercial Paper Funding Facility and the Money Market Lending Facility, neither of which required Fed approval, and the PPP Liquidity Facility.

While the Fed and Treasury have worked closely through the crisis on the programs, they differed on the fate of them.

“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,” the Fed said in a statement.

Those programs that received Treasury collateral under the CARES Act will be coming to an end.

They include the primary and secondary market corporate credit facilities, under which the Fed purchased corporate bonds, as well as the Municipal Liquidity Facility for state and local governments, the Main Street program and Term Asset-Backed Loan Facility, aimed at keeping the market for those securities liquid.

In addition, Mnuchin requested that the Fed return the unused portion of those funds, which totals $455 billion that he said will be reappropriated.

The programs together didn’t come close to their capacity of more than $2 trillion.

In particular, the Main Street program, geared at businesses with fewer than 15,000 employees, went through several changes, none of which created significant interest from either borrowers or lenders. Through early November, Main Street issued just shy of $4 billion in loans, compared to its $600 billion capacity.

“The Main Street Lending program, which was meant to be the low-interest loans to help people stay afloat, has been an absolute failure. I don’t know of a single hotelier in the entire United States that received a Main Street lending loan,” Chip Rogers, chief executive of the American Hotel & Lodging Association, said Thursday on CNBC’s “Power Lunch.”

However, Mnuchin, along with Powell and other Fed officials, have stressed repeatedly that the programs were successful even with their light take-up. Markets are functioning efficiently, and the programs can be restarted if they are needed.

“Do they need to be extended? This is getting a lot of debate, but I’m going to make the case that whether we extend them or now may not be that material to financial markets,” St. Louis Fed President James Bullard said earlier this week. “We can always start up the liquidity programs again in the future.”

The end of the programs did not come as a complete surprise. Sen. Pat Toomey (R-Pa.) has openly questioned whether Congress should continue to subsidize the facilities.

However, markets largely embraced the Fed’s moves, with the corporate bond-buying program considered integral to stabilizing a massive market that had become gummed up in March. Companies have issued debt at a record pace since.

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