Former NY Fed President Bill Dudley on Fed credit risk

Former NY Fed President Bill Dudley says Federal Reserve restored corporate and market function but one area where people are critical of Fed is its lack of main street lending facility.

Video Transcript

BILL DUDLEY: Well, I think for most of the programs which are backstopping markets that, you know, the amount of takedown of the program isn't really that important in terms of how-- in terms of judging the effectiveness. I mean, I think the Fed has restored market function in the corporate bond market and the agency mortgage-backed securities market and the municipal bond market, even though they haven't actually purchased that many actual securities. And they don't have to, because they're a credible backstop.

I think the one area where people are more critical about the Fed is the lack of take-up of the Main Street Lending Facility. That was a program designed to provide loans to medium-sized businesses that were bigger than what was relevant for the Paycheck Protection Program, but smaller than large corporations that have access to US capital markets.

You know, it's possible-- you know, one could make the case that the Fed could make the terms of the Main Street Lending Program more lenient, and therefore get a greater amount of take-up. I think the fundamental problem of the Main Street Lending Program, though, is actually quite different. If banks have good loans to make, they're just going to make good loans. They're not going to spade out those good loans to the Fed.