A few days ago, in response to the Fed’s March 23rd announcement that it planned to help smaller businesses through a new Main Street Lending Program, I posted an essay here about the Fed’s 13(b) business-lending program—a New Deal arrangement that had the same aims. Among other things, I pointed out that, thanks in part to that program’s painstaking, slow, and highly selective application approval process, it ultimately made little difference to the businesses it was supposed to help. Yet until World War II came along, it still managed to lose plenty of money, by yielding a net return of minus 3 percent.
Since then, Boston Federal Reserve Bank President Eric Rosengren has told Bloomberg’s Mike McKee that the Fed’s new Main Street facility “is still in the design phase,” and that it won’t be up-and-running until mid-April. “It’s a complicated facility to appropriately scope,” he said; and the Fed “needs to make sure that banks and other organizations understand what the nature of the facility is.” The Fed seems determined to avoid the fate of the SBA’s complementary, $350-billion emergency lending program, which is set to launch tomorrow. According to today’s Wall Street Journal, the fact that that program’s details have yet to be ironed-out
is complicating efforts by lenders to gear up for what is expected to be an onslaught of prospective borrowers at the end of this week. Among what lenders say are the unanswered questions are how much due diligence of borrowers is required and whether they will be able to sell these loans to create liquidity.
In this follow-up to my last post, I review some of the logistical challenges the Fed encountered in administering its 13(b) loans. Doing so may help readers to understand some of the issues with which Fed officials are now grappling. And who knows? Perhaps those officials themselves will draw some lessons from it.
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