By David Lawder
WASHINGTON (Reuters) – U.S. Treasury Secretary Steven Mnuchin said on Wednesday he is ready to invest more capital in new or expanded Federal Reserve coronavirus rescue lending programs but is not considering more aid to struggling airlines at the moment.
Mnuchin told reporters during a video news briefing that he was deliberately holding in reserve some $259 billion from the $2.2 trillion coronavirus rescue legislation passed in late March.
The Treasury will not use the unallocated money for direct loans to companies, nor to provide aid to specific industries, such as oil and gas producers, Mnuchin said. Instead, it would provide capital that would be leveraged through broad-based Fed lending programs.
“I didn’t want to allocate all the money up front,” Mnuchin said on a Zoom chat. “I wanted to leave some money in reserve to see how each one of these programs did, to see if the programs needed more money and to see if we needed to do more programs.”
From an original $454 billion pot of money, the Treasury has allocated some $195 billion to the Fed’s Main Street Lending Program for mid-size businesses with 500 to 10,000 employees and to a program supporting support municipal bond markets. The programs will offer up to $2.3 billion worth of Fed lending capability.
(See an animated graphic explaining the U.S. government’s stimulus https://graphics.reuters.com/HEALTH-CORONAVIRUS/USA-SAFETY-NET/rlgpdwwjjvo/index.html.)
Mnuchin said that was a “staggering” amount, and had already unblocked some credit markets.
“To the extent the Main Street program becomes a success (and) it needs more capital, I would absolutely allocate more capital to that.”
He declined to say what new Fed lending programs may be created, adding that he did not want to “prejudge” them.
Later Wednesday, Fed Chair Jerome Powell described the unspent Treasury funds’ role as standing in front of the Fed’s losses.
“I do think we’re clearly moving into areas where there is more risk than there has been in the past,” Powell said. “And that’s okay, I think that’s what we’re supposed to do. This is a very unusual time.”
Regarding airlines, Mnuchin said Treasury was not in discussions regarding further aid after the current round of $25 billion in payroll assistance runs out. Airlines taking the aid must keep employees on their payrolls through Sept. 30, and Mnuchin said there was no consideration to changing that rule.
“I think this money was critical to keep these airlines together, which was important for national security,” Mnuchin said. “I think we’ve struck the right balance of both payroll support, as well as offering them lending facilities which will also create additional liquidity.”
He reiterated that he did not consider aid to the airlines, nor to any other companies as a bailout.
During the last crisis, the Treasury’s Troubled Asset Relief program turned an overall profit on investments in banks and automakers, but Mnuchin said profit was not the objective in the coronavirus relief efforts. Grant programs were never meant to be recouped, but Treasury hoped not to lose money on loan programs.
“So, what I would say is if we look at this, we think there are certain scenarios where we’ll get our money back, there are certain scenarios where we’ll lose all of our money and there are certain scenarios where we’ll make money,” he said.
As small businesses and nonprofit groups scramble for a second, $310 billion round of forgivable payroll loans, Mnuchin also said that a third round of funding was not under discussion for the Paycheck Protection Program.
“There haven’t been any discussions about a re-up,” Mnuchin said of the program.
The $310 billion, along with $350 billion in small business disaster loans approved last week by Congress, would provide substantial support to small businesses, he added.
Larger companies are continuing to return payroll loan funds following new Treasury guidance that largely excludes publicly traded firms, Mnuchin said. He did not offer a figure on the amount of returned money.
(Additional reporting by Heather Timmons and Lindsay Dunsmuir; Editing by Jonathan Oatis and Alistair Bell)