Tight terms of Main Street program hamper lending, say banks in Fed survey

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Tight terms of Main Street program hamper lending, say banks in Fed survey




FILE PHOTO: The Federal Reserve Building is photographed in Washington, USA, March 19, 2019


© Reuters/LEAH MILLIS
FILE PHOTO: The Federal Reserve Building is photographed in Washington, USA, March 19, 2019


WASHINGTON, Sep 29 (Reuters) – A sample of US banks say they expect demand for credit from companies targeted by the Federal Reserve’s Main Street loan program to increase in the coming months, but gave no clear sign that the use of the much-criticized scheme itself will change.

In contrast, respondents to a Fed survey of senior borrowers found that loans under the Main Street program accounted for less than 2.5% of the business loans they made.

Lenders cited a variety of restrictions around using the program, including cash flow requirements imposed by the central bank and payment terms that precluded some potential borrowers, as well as the ability to simply make loans themselves without get involved with the Fed.

“Respondents expected loan inquiries (commercial and industrial) to increase in the next three months,” from companies in the size category eligible for Main Street programs, or with no more than 15,000 employees or $ 5 billion in income.

“However, only a modest portion of banks expected their willingness to lend (from Main Street) to increase over the same period.”

The latest August survey covered 86 banks, including 33 with assets of at least $ 50 billion.

Main Street is a cornerstone of the Fed’s response to the pandemic. But uptake has been low, a fact that central bank authorities highlight as evidence that the credit system works without the agency’s support. So far, the Fed has approved only about $ 2 billion of possible $ 600 billion in loans.

(Report by Howard Schneider, Edited in Spanish by Manuel Farías)

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