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Senate Banking Committees CARES Act Oversight Hearing

Senate Committee on Banking, Housing, and Urban Affairs

“The Quarterly CARES Act Report to Congress”

Thursday, September 24, 2020

Witnesses

  • The Honorable Steven Mnuchin, Secretary, U.S. Department of the Treasury
  • The Honorable Jerome Powell, Chair, Board of Governors of the Federal Reserve System

Opening Statements                   

Chairman Mike Crapo (R-Idaho)

In his opening statement, Crapo expressed interest in assessing opportunities to allocate remaining CARES Act (Title IV) funding and exploring ways to broaden access to the Main Street Lending Program. He said that the regulatory framework should support banks and credit unions, which are currently experiencing a significant inflow of deposits and play a critical role in facilitating economic recovery. In closing, Crapo said he looks forward to hearing how the financial resources provided under the CARES Act have helped Americans as well as assessing new options for providing additional financial support.

Ranking Member Sherrod Brown (D-Ohio)

In his opening statement, Brown stated that Congress must lead and use its vast resources to avoid a catastrophic recession. Brown said that additional support is needed for unemployed workers, emergency rental assistance, local governments, and the U.S. Postal Service. Brown stressed the need for an urgent federal support package to keep families in their homes and workers in their jobs.

Testimony

The Honorable Steven Mnuchin, Secretary, U.S. Department of the Treasury

In his testimony, Mnuchin stated that the Treasury is fully committed to getting every American back to work as quickly as possible. He forecasted tremendous economic growth in the third quarter fueled by strong retail sales, housing starts, increased home sales, manufacturing growth, and increased business activity. Mnuchin noted that certain industries continue to require additional relief and stated that the administration is committed to working with Congress to find a bipartisan solution.

The Honorable Jerome Powell, Chair, Board of Governors of the Federal Reserve System

In his testimony, Powell stated that the Fed remains committed to using its tools for as long as it takes to promote economic growth and limit lasting damage. While many economic indicators show marked improvement over recent months, Powell noted that both employment and economic activity remain below pre-pandemic levels and the path ahead is highly uncertain. He stated that a full economic recovery is likely to come only when people are confident in the safety of engaging in a broad range of activities. In closing, Powell said that Fed facilities are designed as a back stop to support the functioning of private markets, and direct fiscal support may be needed to facilitate recovery in certain cases.

Question & Answer

Federal Reserve Lending Facilities

Sens. Tim Scott (R-S.C.), Bob Menendez (D-N.J.) and John Kennedy (R-La.) all discussed the status of the Main Street Facility. Powell noted that the Fed has seen very little demand below $1 million in this facility and that the Main Street program is not designed to provide relief to the small businesses being discussed. Mnuchin added that reallocating the money that is unspent in the Main Street Facility to PPP would be the most impactful path forward after using the $130 billion that is still sitting left unused in the PPP to send second checks to small businesses.

Scott specifically questioned the witnesses on their efforts to address the increased needs of minority businesses. Powell agreed that this public health crisis has had a disproportionate impact on minority-owned businesses. He continued that the Fed has pursued a significant amount of outreach to Minority Depository Institutions and Community Development Financial Institutions. Scott also highlighted S. 4586, legislation that would amend the CARES Act to require the uniform treatment of national recognized statistical rating organizations, stating that this measure will address businesses’ need for greater access to federal lending facilities. In response, Powell pledged to work with Scott on the issue and noted that they have already broadened the circle of those who are included.

In response to a request from Sen. Tom Cotton (R-Ark.) to reflect on the success of the Fed Facilities stood up in response to COVID-19, Powell outlined that the original facilities that dealt with the funding markets were the most successful. Sen. Pat Toomey (R-Pa.) added these facilities have been successful as their purpose was to allow private markets to function again, not serve as a substitute for fiscal policy.

Paycheck Protection Program (PPP)

Sens. Jack Reed (D-R.I.), Jon Tester (D-Mont.), Catherine Cortez Masto (D-Nev.), Martha McSally (R-Ariz.) and Crapo highlighted the pressures facing small businesses and asked a variety of questions regarding the PPP. Mnuchin reiterated that he has asked for Congressional authority to reallocate unspent funds and reauthorize the PPP. He continued that additional PPP relief is the most effective way to provide targeted relief to those industries and sectors most under stress. Powell added his belief that additional fiscal support will most likely be needed.

Sen. Mike Rounds (R-S.D.) took the opportunity to call on Mnuchin to simplify the process and reduce the burden on small borrowers. Sen. Ben Sasse (R-Neb.) commented that a simplified forgiveness form is necessary. Mnuchin responded that he would support legislation that allows for this simplification while preserving sufficient fraud protection.

Commercial Real Estate Market

Crapo asked about the difficulties facing the commercial real estate market. Mnuchin referenced structural problems with this market in terms of the limitation of additional debt and prepayment penalties. He concluded that Treasury continues to look at all options to alleviate the burden on this market. Sen. Kyrsten Sinema (D-Ariz.) called on Congress to pass rental assistance as soon as possible to avoid the negative downstream impacts of people being unable to pay their rent.

China

Kennedy noted that he has heard from colleagues that House Speaker Nancy Pelosi (D-Calif.) has decided not to move any Senate China-related bills that are sponsored or co-sponsored by a Republican. Mnuchin responded that he is not aware of any such development but pledged to continue to work on these issues with both Kennedy and Pelosi.

Economic Inequality

Sens. Elizabeth Warren (D-Mass.) and Tina Smith (D-Minn.) both addressed the role of the Fed in combatting racial economic inequality. Powell stated that the Fed can have the greatest impact on this issue by working to facilitate a robust labor market that benefits minorities and women.

Banking Industry

In response to a question from Sen. Richard Shelby (D-Ala.), Powell stated that the financial system has been a source of strength throughout this public health crisis, specifically praising the strong levels of capital at banks.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.