Top Regulators Discuss MSLP, Other Measures to Aid in Coronavirus Response at Senate Hearing

Getting the Main Street Lending Program facilities up and running is a “top priority” for the Federal Reserve, Vice Chairman for Supervision Randal Quarles said in testimony before the Senate Banking Committee today. While Quarles declined to give a specific date for when the facility will be operational, he noted that “I don’t think we’re looking at months” before firms can begin to access the MSLP.

Quarles added that the Fed has already worked “at speed” to establish several new credit and liquidity facilities using its 13(3) authority under the Federal Reserve Act. “When you compare the speed to the development and deployment of the facilities at the time of the 2008 crisis, I think that we . . . have been able to respond much more rapidly now.” He added that “It’s important that we do the complicated, technical work to ensure that they can be rolled out effectively as well as quickly.”

During the hearing, regulators also discussed potential legislative changes that would enable them to provide additional support to banks to address the coronavirus crisis. Quarles urged lawmakers to expand the authority given to regulators under the Dodd-Frank Act’s Collins amendment—which created statutory minimum capital requirements—to allow them to provide a temporary exclusion for safe assets from leverage ratio denominators.

Banks have seen a large influx of deposits since the crisis began, which has caused balance sheet growth and in turn created capital constraints, Quarles said. “If adjustments aren’t made to those capital constraints, then the influx of those safe assets will ultimately cause them to have to turn away customers.” He noted that the Fed has already made the change to the supplemental leverage ratio at the holding company level and signaled that the agencies could also do so at the depository institution level.

However, he added that “It gets trickier to make a change to the tier 1 leverage ratio, which would be of general applicability, and that’s where Collins amendment difficulties really arise.” Without expanded congressional authority, he said the agencies would continue to look for a regulatory solution “to allow banks to serve their customers in a way that’s safe.”

Meanwhile, FDIC Chairman McWilliams called for changes to brokered deposit statutes that would limit growth for undercapitalized institutions rather than “placing a stigma on brokered deposits, which are not necessarily bad for banks,” as ABA has long advocated. In her written testimony, McWilliams cited innovation and the need to make banking services accessible to the unbanked population as key factors driving the FDIC’s initiative to modernize the brokered deposit regulations.