Federal Reserve Chairman Jerome Powell said the Fed will make some changes to its Main Street Lending Program, which aims to help small and medium-sized businesses and nonprofits that have struggled during the pandemic of coronavirus.
Despite many private companies struggling economically due to closures or a drop in customer numbers during the pandemic, the fund has not seen strong underwriting.
Currently, the banks that make the program loans, and subsequently sell 95 percent of each loan to the Fed, apply the same underwriting standards as they would their regular loans, Powell said. The Fed is working to ensure that banks clearly understand the terms of the program and that it is intended for borrowers who do not have access to normal borrowing at the moment.
“We expect them to do some underwriting; we also want them to take risks, obviously because that was the point. The question is how to compose that? It’s not an easy thing. to do, “Powell said in a press conference after the Fed’s September policy meeting on Wednesday. “We continue to work to improve Main Street, to make it accessible to just about any business that needs it and can repay a loan.”
Powell said the program has now purchased around $ 2 billion in loans, still only 0.3% of the total capacity of $ 600 billion.
He added that businesses are not citing credit constraints as a major issue at this time. The Fed is also forced, under Section 13 (3) of the Federal Reserve Act, to lend only to creditworthy companies.
“For many borrowers, they’re in a situation where their business is still relatively closed and they won’t be able to repay a loan, so they might need more tax support,” Powell said.