The Main Street Lending Program's slow rollout, combined with its complexity, has the financial industry questioning whether it will work.
The Federal Reserve is about to launch a $600-billion gambit to save swaths of U.S. businesses and tens of millions of jobs threatened by the coronavirus crisis. Wall Street is far from confident the Fed can pull it off.
The slow rollout, combined with its complexity, has the financial industry questioning whether Main Street will work, especially compared with rapid-response actions that are already up and running, such as the Fed’s plans to buy corporate bonds and exchange traded funds that can invest in high-yield debt.“I think saying this is likely to be the least successful is probably right,” Matthew Mish, a strategist at UBS Group AG, said of the Main Street program.
The Fed can buy up to $600 billion in loans that are issued, and the Treasury Department has provided a $75-billion backstop that can be increased to cover any losses. The Fed says it will purchase loans until Sept. 30, though that date can be extended because Congress has authorized the central bank to keep buying the debt until the end of the year.
For bigger companies, the upper limits in the Main Street program pose the opposite problem of not being enough money, said Oleg Melentyev, Bank of America Corp.’s head of U.S. high-yield strategy. “It is going to be a very small share of your cash burn taking place right now,” he said.Banks that provide funding as part of the program will have to pay the Fed a transaction fee of as much as 1% of the loan amount, a charge they can pass on to borrowers.
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