The Fed's Main Street Lending Program Gave $1.8 Billion In Loans to Companies Who Later Laid Off Workers

A new Public Citizen analysis of the Fed's Main Street Lending Program (MSLP) has found that the program facilitated over $1.8 billion in loans to companies that laid off workers during the pandemic, and extended support to wealthy companies that were first in line to receive multi-million-dollar PPP loans. The findings of the report indicate that MSLP failed to meet its goal of supporting employment, as well as its goal of providing aid to businesses that were financially sound before the pandemic but have been damaged by the economic downturn caused by COVID-19. These discoveries have major implications for future emergency lending programs, indicating that structural changes will be necessary to make another iteration of MSLP successful.

Miriam Li, a corporate accountability associate in Public Citizen's Congress Watch division, explained that program funds were both underused and misdirected - outcomes that should guide lawmakers in crafting future lending programs for struggling businesses. "MSLP had the potential to provide significant support to struggling businesses and their workers. The idea was great, but the program ultimately failed to reach the neediest companies, failed to adequately support workers, and ended up providing loans to companies that already had access to other sources of credit."

Other key findings include:

• MSLP provided loans of $20 million or more to companies with fewer than 10 employees, including several boutique financial firms.
• 20% of companies that received MSLP loans also received PPP loans of $1 million or more, collectively receiving over $1.1 billion in loans.
• MSLP loan-to-employee ratios frequently exceeded $2 million-per-employee.

The report also finds that the Fed's changes in MSLP rules mirrored requests by fossil-fuel-industry lobbyists, which included removing borrower certifications regarding financial need and employee retention efforts. The report suggests that these changes exacerbated the MSLP's failures and opened the program to companies that should not have received taxpayers' support.

The report's policy recommendations section calls for future emergency lending programs to take on greater risk by loosening credit requirements and extending loans to companies who have been severely damaged by the pandemic. It also calls on lawmakers to implement stronger guardrails for future stimulus programs, including borrower certifications regarding financial need and employee support.

Li noted that, now that MSLP has ended, creating a new government lending program will be critical to mitigating the economic damage wrought by COVID-19. "Mid-sized businesses employ 44 million people in the United States. Mass closures of small and mid-sized firms will not only take away these jobs, but it will also accelerate the rate at which multi-national corporations take over Main Street - a trend that hurts local communities, business owners, and American consumers."

Read the report here.