WASHINGTON — Senate Republicans are proposing legislation to prevent the Federal Reserve from reviving emergency lending facilities launched earlier in the coronavirus crisis that the central bank plans to shut down at yearend.
Sen. Pat Toomey of Pennsylvania, who will likely chair the Senate Banking Committee if the GOP holds its majority, said on a Thursday conference call with reporters that Republicans are in agreement that the next coronavirus relief package should explicitly and permanently terminate the Fed facilities funded by the Coronavirus Aid, Relief and Economic Security Act.
“The facilities that were funded through the CARES Act were to be temporary, they were to provide a backstop, and in all cases would cease operations no later than the end of 2020,” Toomey said.
Those facilities include the Main Street Lending Program, through which the Fed can buy pieces of bank loans issued to midsize businesses hampered by the pandemic. They also include the Primary Market Corporate Credit Facility, Secondary Market Corporate Credit Facility, Municipal Liquidity Facility, and the Term Asset-Backed Securities Loan Facility.
To be clear, the Fed maintains broad emergency lending powers under Section 13(3) of the Federal Reserve Act, enabling the central bank to operate credit facilities without an act of Congress as long as the Treasury Department approves it and the facility provides broad-based support, not just for specific companies.
Treasury, under Secretary Steven Mnuchin, has already compelled the Fed to agree to return unused CARES Act funds and at yearend terminate those facilities backed by Congress. However, Mnuchin and Fed Chairman Jerome Powell agreed to extend four of the non-CARES facilities through the end of March 2021.
Toomey said the bill would not affect the Fed's general emergency lending powers.
"The 13(3) legislation remains on the books, and the Fed’s 13(3) authority will continue,” he said.
Some have expressed hope that the incoming Biden administration could maneuver to let the Fed once again tap CARES Act funds to provide emergency relief in 2021. But Toomey said the proposed legislation would ensure that unused funds from CARES Act emergency lending facilities remain with the Treasury and that the Fed cannot relaunch programs that it plans to shut down at the end of this month.
“In our language, we do have the repurposing of this money,” Toomey said. “We also reiterate that these facilities all expire at the end of this year as Congress intended and the law requires. And we ensure that you couldn’t just create a new clone of one or more of these programs.”
Toomey insisted that the legislation was not political and that it is strictly meant to clarify the original intent of the CARES Act.
“Quite contrary to what some of my Democratic colleagues have suggested, this is not at all an effort to in any way hamstring the Biden administration or weaken our economy,” Toomey said. “That is a ridiculous notion.”
Toomey’s comments come as a bipartisan group of lawmakers have been working to negotiate a new COVID-19 stimulus bill, with discussions to funnel roughly $908 billion into the economy.
Toomey said the language to terminate the Fed’s CARES Act facilities and ensure that identical facilities can’t be created is his main priority.
“This is the most important thing to me,” Toomey said. “Maintaining the integrity and role of the Fed. … Preventing the Fed from being misused and becoming an allocator of credit. … I think we have a very, very broad agreement among Republican senators that this is the right approach.”
