Adjustments in bank regulation, many temporary, were among the actions the chair of the Federal Reserve pointed to in dealing with the coronavirus crisis during testimony Tuesday.
Appearing remotely before the Senate Banking Committee, Federal Reserve Board Chair Jerome H. (“Jay”) Powell said the regulatory changes made by the agency were to encourage banks to use their “positions of strength” to support households and businesses. He reiterated his past comments that banks and other financial institutions are much better positioned than they were in advance of the 2008 financial crisis.
Powell, along with Treasury Secretary Stephen Mnuchin, were providing a first, quarterly report on the execution and impact of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted March 27.
“Unlike the 2008 financial crisis, banks entered this period with substantial capital and liquidity buffers and improved risk-management and operational resiliency,” Powell said. “As a result, they have been well positioned to cushion the financial shocks we are seeing.”
Powell noted that unlike the crisis of 12 years ago, when banks pulled back from lending and amplified the economic shock, “in this instance they have greatly expanded loans to customers.”
In other comments, the Fed chair said it was preparing to launch the Main Street Lending Program, which is designed to provide loans to small and medium-sized businesses that were in good financial standing before the pandemic. “Importantly, with these and other facilities that the Federal Reserve has not employed before, public input has been crucial in their development,” he said. “For example, in response to comments received, we lowered the minimum loan size and raised the maximum loan size across the three lending facilities within the program; in addition, we expanded the size of firms allowed to borrow under the program to companies with up to 15,000 employees.”
Powell said the Fed will continue to adjust its facilities as it learns more. It added that the central bank will be disclosing, on a monthly basis, names and details of participants in each of the lending facilities that it has set up to bolster the flow of credit to various industries and sections of the financial markets. He said those disclosures would include amounts borrowed and interest rate charged; and overall costs, revenues, and fees for each facility.