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Treasury moves to end some crisis-era programs in response to Fed backlash

The Treasury is trying to expand some of the Federal Reserves used to win the market early in the coronavirus crisis, but plans to end some other programs that expire at the end of the year. is.

Treasury Secretary Steven Mnuchin has asked the Fed to continue for another 90 days, including programs that offer companies short-term “commercial paper” loans and Bucks related to money market features and paycheck protection programs. There is a program for the top.

However, Mnuchin also called for the termination of other programs supported by Treasury capital for now. This includes two facilities that purchased corporate bonds and a main street lending program for small businesses.

On September 21, 2020, at the US State Department in Washington, US Treasury Secretary Steven Mnuchin announced at a press conference that the Trump administration would restore sanctions on Iran.

Patrick Semansky | Pool | Reuters

The program was set to expire at the end of the year. They were founded in early March to open a market that had been frozen during the panic-selling frenzy due to heightened fear of a pandemic.

However, they were used sparsely for the most part and were the subject of some criticism, especially main street facilities.

In a letter to Fed Chair Jerome Powell, Mnuchin said, “Part of the economy is still seriously affected and needs additional support, but the financial position is responsive and of these facilities. Use is restricted. “

Nonetheless, Mnuchin said he would “with great care” to keep the commercial paper funding and money market lending facilities, and the PPP liquidity facility, which do not require Fed approval.

The Federal Reserve Board of Governors and the Treasury have worked closely throughout the program crisis, but their fate was different.

“We hope that the set of emergency facilities established during the coronavirus pandemic will continue to play an important role as a backstop for a tense and fragile economy,” the Federal Reserve Board said in a statement. It was.

Programs that receive financial collateral under the CARES Act will be terminated.

These include primary and secondary market corporate bond facilities where the FRB purchased corporate bonds, municipal liquidity facilities for state and local governments, main street programs, and term asset back loans aimed at maintaining the market. Includes facilities. Their securities liquidity.

In addition, Mnuchin demanded that the Fed return the unused portion of these funds. This totals $ 455 billion and will be reassigned, he said.

Together, these programs never approached more than $ 2 trillion.

In particular, the Main Street Program, which targets companies with less than 15,000 employees, has undergone some changes, none of which has received much attention from borrowers or lenders. Until early November, Main Street issued a $ 4 billion loan, compared to a capacity of $ 600 billion.

“The main street lending program, which was intended to be a low interest rate loan to help people float, was an absolute failure. No hotel owner across the United States received a main street loan. I don’t know, “said Chip Rogers, chief executive of the American Hotel & Lodges Association, on Thursday about CNBC’s” Power Ranch. “

However, Mnuchin, along with Powell and other Federal Reserve Boards, has repeatedly emphasized the success of the program, even if it was neglected. The market is functioning efficiently and you can restart the program if needed.

“Is it necessary to extend it? There is a lot of debate about this, but it may not be so important to financial markets,” said James Bullard, president of the Federal Reserve Bank of St. Louis. Stated. Earlier this week. “You can resume your liquidity program at any time in the future.”

The end of the program was not a complete surprise. Senator Pat Toomey (Republican) has openly questioned whether Congress should continue to subsidize the facility.

However, markets have embraced the Fed’s move so much that corporate bond purchase programs were considered essential to stabilizing the huge, fast-growing market in March. Since then, companies have been issuing debt at record paces.

Treasury moves to end some crisis-era programs in response to Fed backlash

Source link Treasury moves to end some crisis-era programs in response to Fed backlash

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