Rep. Maxine Waters (D-CA), chairwoman of the House Financial Services Committee, last week sent a letter to Jerome Powell, chair of the Board of Governors of the Federal Reserve System, urging him to address concerns regarding the implementation of programs and facilities authorized by the CARES Act.      

In the letter, parts of which are mentioned below, Waters outlined numerous issues including the Federal Reserve’s narrow design of the Municipal Liquidity Facility; exclusion of lenders and organizations looking to participate in the Main Street Lending Program; and limits to certain Paycheck Protection Program (PPP).     

“In recent weeks, the Board of Governors of the Federal Reserve System (Federal Reserve or Fed) has announced sweeping measures to respond to the economic and financial fallout from the COVID-19 global health pandemic, including a series of facilities that extend support to nearly every sector of the economy,” Waters wrote. “As the Federal Reserve undertakes implementation of programs and facilities authorized by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), with the approval of the Secretary of the Treasury and utilizing funds appropriated by Congress, I urge you to consider and address the following concerns.

Municipal liquidity facility

“Congress made no distinction regarding the size of a municipality that should directly benefit from such a program. Unfortunately, only the largest cities with more than one million residents and the largest counties with more than two million residents would be eligible under the Fed facility for direct support. …. This approach risks exacerbating racial disparities in the federal government’s response to COVID-19. A recent analysis noted the program’s exclusion of the 35 most heavily African-American cities in the country, and found that: ‘For every 10 percent more Black the city’s population, it is ten percent less likely to qualify for the Fed’s program.’      

“The Federal Reserve’s narrow design of the Municipal Liquidity Facility is inconsistent with the letter and spirit of the law. 

Main Street Lending Program

“The CARES Act directed the Treasury Secretary to seek the establishment of a facility like the Main Street Lending Program. Specifically, the law stated such a program or facility should provide, ‘financing to banks and other lenders that make direct loans to eligible businesses including, to the extent practicable, nonprofit organizations, with between 500 and 10,000 employees….’ …There are a number of shortcomings with the initial design of the program. It is imperative that these concerns be addressed to ensure this is a more effective facility that meets the needs of small and diverse entities that require immediate financial support.     

“For example, even though the CARES Act explicitly references non-profit organizations, the current design of the Main Street Lending Program excludes non-profit organizations, including charitable non-profits, such as churches, as well as institutions of higher education, like Historically Black Colleges and Universities (HBCUs). These institutions should not be left behind and may warrant a segmented and less costly loan program to meet their needs consistent with their mission. … Relatedly, I urge you to allow ratings from smaller agencies often used by small and minority-owned businesses, not just the big three credit rating agencies. 

Paycheck Protection Program Liquidity Facility

The Federal Reserve recently launched the Paycheck Protection Program (PPP) Liquidity Facility for depository institutions that are making forgivable PPP loans that are guaranteed by the Small Business Administration (SBA). … I also urge the Federal Reserve to promptly expand the PPP Liquidity Facility to ensure all PPP lenders, not just banks, can access this facility to support small business lending.     

In closing, I urge the Federal Reserve to address these issues as quickly as possible. I look forward to your written response by April 24, 2020 to provide an update on how these matters are being addressed.