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Fed To Return Lending-Backstop Funds To Treasury As Requested #GotBitcoin

The Federal Reserve said Friday it would comply with a Treasury Department request to return unused funds meant to backstop five emergency lending programs, moving to tamp down a public rift that arose a day earlier. Fed To Return Lending-Backstop Funds To Treasury As Requested #GotBitcoin

“We will work out arrangements with you for returning the unused portions of the funds allocated to the Cares Act facilities in connection with their year-end termination,” Fed Chairman Jerome Powell said in a letter to Treasury Secretary Steven Mnuchin posted on the central bank’s website.

Mnuchin on Thursday sparked a conflict between his agency and the central bank when he said he wouldn’t agree to extend the facilities enabled by the Cares Act, passed by Congress in March. The law appropriated funds to act as loss-absorbing buffers that enabled the Fed to stabilize financial markets and make loans to companies and municipal debt issuers.

Mnuchin says the programs are no longer needed, and the money should be returned to Congress and put to better use elsewhere.

The Fed had responded on Thursday with its own statement, saying it “would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”

‘Deeply Irresponsible’

The move drew swift criticism from Democrats. President-elect Joe Biden’s transition team spokeswoman, Kate Bedingfield, on Friday blasted Mnuchin’s move as “deeply irresponsible.”

The S&P 500 Index extended a weekly decline as traders weighed the dispute over the emergency lending programs. The credit markets seemed to hold up amid the uncertainty. Corporate bond investors continued to flood Carnival Corp.’s bankers with orders for debt.

On Friday, Powell conceded the Treasury’s authority in the matter, saying in the letter that the Cares Act “assigns the Treasury secretary sole authority to make certain investments in Federal Reserve emergency lending facilities, subject to limits specified in the statute.”

Some officials, including a Democrat sitting on the commission supervising spending under the Cares Act, have said the Fed wasn’t legally required to return funds already transferred to it by the Treasury. But the Fed made clear it would not escalate the spat and would return the funds.

Other Funds

Powell, in his letter, also appeared to urge the Treasury to consider using other funds held by Treasury to reauthorize at least some of the programs that will now be unable to make new loans after Dec. 31.

“As you noted in your letter, non-Cares Act funds remain in the Exchange Stabilization Fund and are, as always, available, to the extent permitted by law, to capitalize any Federal Reserve lending facilities that are needed to maintain financial stability and support the economy,” Powell wrote.

The ESF contains about $75 billion that pre-dates the Cares Act. Mnuchin has also left open the possibility of using that money to re-activate the programs, but appeared to characterize that as an emergency option.

“In the unlikely event that it becomes necessary in the future to re-establish any of these facilities, the Federal Reserve can request approval from the secretary of the Treasury,” Mnuchin said in his letter on Thursday.

The Fed, in contrast, believes the programs remain crucial. In an online event Nov. 17, Powell said the Fed would eventually shut down its emergency programs, but added, “I don’t think that time is yet or very soon, we will put those tools away.”

The programs affected include two that can purchase corporate bonds, one for municipal debt and one, the Main Street Lending Program, that makes loans to mid-sized companies through banks.

The programs will continue to hold existing assets and service loan agreements with banks. The Fed will retain about $26 billion received by the Treasury to continue to backstop the loans already made. But the programs won’t be able to extend new credits unless they receive fresh funds from Treasury.

Updated: 11-30-2020

Federal Reserve Extends Four Emergency Lending Programs

Central bank extends programs backstopping short-term funding markets through March.

The Federal Reserve on Monday said it had extended through next March four backstop lending programs that helped to stabilize short-term funding markets when the coronavirus pandemic hit this past spring.

The extensions were widely expected and don’t apply to any of the lending programs that the Treasury Department earlier this month said it would not renew.

Treasury Secretary Steven Mnuchin on Nov. 19 told Fed Chairman Jerome Powell that he would not grant extensions for five lending programs that have backstopped markets for corporate and municipal debt and to purchase loans made to small businesses and nonprofits when those programs expire on Dec. 31.

In the same letter, Mr. Mnuchin indicated that he would agree to extend four other programs, including the Paycheck Protection Program Liquidity Facility, which made it more attractive for small banks to fund PPP loans this past spring. The Fed agreed to extend that program on Monday.

The Fed also extended the Commercial Paper Funding Facility, which backed a critical market for short-term corporate IOUs that seized up this past March, and the Money Market Fund Liquidity Facility, which had likewise curtailed potential runs on money-market mutual funds.

The fourth program extended by the Fed is the Primary Dealer Credit Facility, which allows Wall Street banks the ability to pledge a broader range of collateral to the Fed.

The Fed had earlier said it disagreed with Mr. Mnuchin’s decision not to renew the other lending facilities but hadn’t formally voted on extending the remaining four.

Updated: 1-11-2021

Fed Sent $88.5 Billion In Profits To U.S. Treasury In 2020

Remittances rose last year for the first time since 2015.

The Federal Reserve sent $88.5 billion in profits to the U.S. Treasury Department in 2020, a nearly two-thirds increase from the previous year as lower rates held down the central bank’s interest expense.

The Fed’s payments to the Treasury had fallen over the previous four years as interest rates rose, boosting the interest it paid on reserves, or money that private banks keep at the Fed’s regional reserve banks. The Fed also began shrinking its portfolio of assets, reducing its overall net income.

In 2020, the Fed lowered rates to near zero in response to the economic downturn wrought by the coronavirus pandemic, sharply reducing interest payments on banks’ excess reserves.

Lower interest expense boosted the Fed’s net income to $88.8 billion in 2020, from $55.5 billion in 2019, according to preliminary estimates of the central bank’s annual financial statement, released Monday.

The Fed is required to use its revenue to cover operating expenses and send much of the rest to the Treasury’s general fund, where it is used to help cover the government’s bills.

The Fed payments to Treasury, called remittances, hit a record in 2015 due to swelling interest income from its huge bondholdings.

Monday’s report showed the 12 Fed reserve banks’ operating expenses totaled $4.5 billion in 2020, unchanged from the previous year.

Monday’s figures are preliminary and could be adjusted when the Fed’s audited financial statements are released in March.

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