Banks that had declined to take part in the program mentioned “their ability to provide credit to eligible borrowers without the MSLP, as well as unattractive key MSLP loan terms for lenders as reasons for not registering,” the report said.
The results revealed a wide gap between how banks view the Main Street program and how key Fed officials see it.
Eric Rosengren, president of the Boston Fed, which administers the program, said in a Sept. 23 speech that the terms “should be attractive to banks, both because of the fees collected” and because the Fed buys out 95% of every loan.
He then pointed a finger at larger institutions for not participating. “None of the nation’s largest banks, by this metric, are currently active in the program,” he said.
The Main Street program has come in for criticism and scrutiny from lawmakers for so far lending out only about $2 billion of its $600 billion capacity.
The survey also showed banks expect loan inquiries from businesses of an eligible size to increase over the next three months, but “only a modest share of banks expected their willingness to extend MSLP loans to increase over the same period.”
A majority of banks said that potential qualified borrowers had debt levels too high to meet the program’s thresholds, and the required certifications and covenants were too restrictive for borrowers. The loans’ interest rates, five-year maturity and payback schedule were not as important factors.
Some 68% of banks said the program’s $250,000 minimum loan size was not an important factor in rejecting loans or registering for the program. Several lawmakers pressed Fed Chair Jerome Powell, who testified before several congressional committees last week, to lower this amount, saying there was demand for smaller loans.
One potential reason for the lower demand for