WASHINGTON – The president of a regional Federal Reserve bank that will oversee a groundbreaking business lending program said Wednesday that he thinks a slower-than-expected recovery from the economic downturn would lead companies to seek critical support from the program.
In an interview with The Associated Press, Eric Rosengren, president of the Federal Reserve Bank of Boston, said the new Main Street Lending Program will provide bridge loans to formerly healthy companies that are struggling because of the virus and the resulting business shutdowns and economic downturn. The Main Street program, announced in March, is expected to begin operations by June 1.
The program will act as "an insurance policy in case things don’t go as well in the second half of the year as we hope,” Rosengren said. Companies that still suffer from weak demand or from an eventual second wave of the coronavirus might be unable to borrow later this year because many banks could be saddled with failing loans. That shortfall would likely boost demand for the Fed's Main Street program, Rosengren said.
“I think many businesses are now realizing ... that this may be a much more extended and slower ramp up than they were hoping," Rosengren said. “Firms may not immediately need the funds. But if this were to be a fairly slow recovery, they may find, as we get into the summer, that they’re more in need of the funds and the facility becomes very useful.”
The Main Street Lending program marks the first time since the Great Depression that the Fed will lend directly to businesses outside the banking sector. Most of the other emergency programs it has launched this year are intended to benefit the economy by ensuring that the financial system is operating smoothly.
Despite its name, the Main Street program is geared for companies too large for the government's small business lending effort, known as the Paycheck Protection Program. The Fed has said it will lend up to $600 billion through the program.
Companies with up to 15,000 employees or $5 billion in revenue will be eligible for loans. The minimum loan will be $500,000 — more than twice the size of loans provided by the PPP.
In an online speech to a business group Tuesday, Rosengren suggested that the U.S. economy will continue to struggle long after states and cities lift their restrictions on business activity. Without a vaccine or other effective public health measures, he said, many consumers, particularly elderly ones, will continue to avoid shopping, eating out or traveling. Given that one-fifth of U.S. jobs involve the restaurant, retail and hotel industries, a full recovery won't be possible until people feel more confident, Rosengren said.