Fed days away from emergency lending to midsize companies

Federal Reserve Chairman Jerome Powell on Friday said the central bank will open the doors of its emergency lending program for midsize businesses in a matter of days.

Under the “Main Street” lending program, the Fed will buy the majority of a bank loan to a company with up to 15,000 employees or up to $5 billion in annual revenue.

In an interview hosted by Princeton University, Powell underscored the difficulty of designing such a program because the companies in that size range are “extraordinarily diverse” and bank loans don’t have the same level of standardization as bonds.

“It’s challenging to get in there but nonetheless get in there we will,” he said. “We do expect to start making loans on Main Street in a few days.”

Powell also held open the possibility that the program would be further broadened; currently the minimum is $500,000 for new loans, and the maximum is $200 million for expansions of existing loans. “I can imagine us expanding on either end,” he said.

“It’s all about creating a context in which employees, a climate in which employees will have the best chance to either keep their job or go back to their job or ultimately find a new job,” Powell said.

The Fed chief also said that the central bank plans to hold the four-year loans to maturity but doesn’t intend to deal directly with borrowers in case of missed payments.

“Once the facilities have done the lending that they’re going to do, then the decisions about what to do about covenant defaults and things like that will not be something that we’ll want to be involved in in a day-to-day basis,” he said. “Those are arrangements we’ll work out … in a commercially reasonable way.”