WASHINGTON — Federal Reserve Chairman Jerome Powell told Congress Wednesday that the central bank is attempting to rectify a shortage of coins being delivered to financial institutions around the country as a result of the coronavirus pandemic.
“With the partial closure of the economy, the flow of coins though the economy has kind of stopped,” Powell said at a House Financial Services Committee hearing one day after he testified to the Senate Banking Committee.
Powell encouraged banks to reach out to their regional Federal Reserve banks to deal with the operational challenge of an interruption in coin delivery.
The hearing also highlighted Powell's support for temporarily easing a capital rule known as the Collins amendment in order to help banks better confront the pandemic crisis. But he opposed a plan proposed by Democrats to give consumers digital wallets housed at the Fed as a means of accessing coronavirus relief payments.
Members of the committee from both parties, meanwhile, praised Powell for the central bank's handling of the economy through the coronavirus pandemic, bucking some of the criticism he has received from President Trump during his tenure.
“It’s amazing to see what you’ve done, the impact it’s had, and we certainly appreciate all of your efforts,” said Rep. Blaine Luetkemeyer, R-Mo.
The discussion of coin shortages came after Rep. John Rose, R-Tenn., told Powell that a number of banks in his district do not know how to deal with a low supply of coin money for their customers.
“I received a call from a bank here in Tennessee’s sixth congressional district yesterday alerting me to the fact they have been notified at the beginning of this week at the Fed that they would only be receiving a small portion of their weekly order of coinage,” Rose said. “According to this banker, his institution will likely run out of coins by Friday or this weekend. And after some preliminary research, I found that many other banks across my district are having the same operational challenge.”
Powell said the partial closings of the economy have led to clogging in the circulation of coins. Regional banks should be able to assist banks coping with coin shortages, he added.
“The whole system of flow has kind of come to a stop,” Powell said. “We are well aware of this. We are working with [the U.S. Mint] and we are working with the reserve banks. And as the economy reopens, we are seeing coins begin to move around again. So if a bank hasn’t already done so, they should certainly be in touch with their reserve bank to report this situation.”
Powell also indicated that he supported Congress temporarily giving banks relief under the Collins amendment. The measure, named for Sen. Susan Collins, R-Maine, was added to the 2010 Dodd-Frank Act to set minimum leverage and risk-based capital requirements.
Rep. Ann Wagner, R-Mo., asked Powell if Congress should “revisit the Collins amendment to make sure that banks are able to adequately respond to increased credit demands.”
“Yes,” Powell replied.
“What we're looking for in a lot of these things we're doing is temporary relief during the pandemic so that the banks can use their balance sheet to support their household and business customers,” Powell said. “It's no more complicated than that. So, as they have taken in more deposits and as they've engaged in forbearance on things like credit card balances and things like that, their balance sheets grow. So, they've been supporting their customers and borrowers and this is simply a matter of allowing them to do that.”
Powell added that he would support the modification of the Collins amendment as a “temporary measure.”
But he was less supportive of a proposal by Democrats in the House and Senate to enable consumers to obtain free FedAccount digital wallets, accessible through local bank branches and the U.S. Postal Service.
Powell poured cold water on the idea, warning about unintended consequences for the overall banking system.
“That would be a very dramatic change in the landscape of banking and I would worry what would happen to the rest of our private banking system because an awful lot of people would opt to keep their personal money at the Fed,” Powell said. “And then who would do the lending? It could kind of hurt our intermediation process.”
The hearing also highlighted a concern that the Federal Reserve’s lending facilities don’t include incentives for companies receiving loans to maintain payrolls. By comparison, the Small Business Administration’s Paycheck Protection Program allows for loans to be partially or fully forgiven for companies that use their funds to pay employees.
Rep. Jim Himes, D-Conn., asked Powell if the Fed was implementing incentives for money borrowed though its liquidity facilities, including the Primary Market Corporate Credit Facility, to go toward payrolls.
Powell said those incentives were not explicitly stated in the Coronavirus Aid, Relief, and Economic Security Act.
“We don’t think it’s up to us to rewrite the law to achieve goals we might have. … Of course, the intended beneficiaries of all of our programs are workers,” Powell said.
Himes said he was concerned that companies might use the government's support to fund riskier activities.
“When the story is told here … a lot of that money will have been used to keep banks solvent, to preserve loans and to service bonds,” Himes said. “The worry I have is that actors in the private market … are going to decide that they can take on a lot more risk, repurchase shares, dividend capital, because when the going gets tough and catastrophe hits, we’ll be there to bail them out.”
