Safeguards Placed on $500 Billion Fund to Overcome Senators' Objections
By Kate Davidson
WASHINGTON -- A $500 billion pot of money aimed in part to aid
airlines and other big companies includes safeguards intended to
prevent misuse, after the fund became a sticking point in
negotiations over the $2 trillion coronavirus relief package
approved by the Senate.
Senate Democrats said an early version of the bill would give
the Treasury secretary too much discretion over how to spend the
money, which is to be put at the disposal of the Treasury
Department. They wanted more oversight from Congress.
Some, including Sen. Elizabeth Warren of Massachusetts, called
it a slush fund, saying it could be used to help companies
connected to members of the Trump administration.
In the end, Republicans and Democrats agreed to include a number
of safeguards on how the money would be spent and mechanisms for
The final version of the bill had provisions similar to the 2008
Troubled Asset Relief Program, which the Treasury Department used
to buy stakes in banks and auto makers.
"The degree of disclosure looks an awful lot like TARP," said
Sarah Binder, a professor at George Washington University who has
studied the Federal Reserve's relationship with Congress.
The $500 billion fund includes $25 billion for loans or loan
guarantees to airlines, $4 billion for cargo air carriers and $17
billion for other companies deemed important for national
The rest, $454 billion, would be used by the Treasury to
backstop Fed facilities designed to maintain the flow of credit to
businesses, states and municipalities.
"We're hoping that it's a mechanism to keep business alive,"
Sen. Pat Toomey (R., Pa.), who was involved in negotiations over
the provision, said Wednesday.
The fund complements the other major pieces of the $2 trillion
emergency relief package, which includes cash payments and expanded
jobless benefits to individuals and loans to small businesses.
"Really this is kind of the catchall to have the Fed and
Treasury do the rest of the work," said Donald Schneider, an
economist at Cornerstone Macro.
Treasury officials say the fund could leverage as much as $4
trillion in Fed lending by absorbing potential losses.
In recent weeks, the Fed has launched five separate lending
programs to ease liquidity strains and calm market turmoil sparked
by the epidemic. Those include the revival of programs from the
2008 financial crisis to lend to U.S. corporations and backstop
money-market mutual funds.
The Fed has also said it plans to launch a Main Street Business
Lending Program for small and midsize businesses, something the
bill directs the Treasury secretary to help coordinate.
The bill sets limits on compensation for executives and
prohibits stock buybacks and dividend payments at companies that
get aid. It also creates a special government watchdog housed in
the Treasury to track lending and report regularly to Congress,
similar to the one set up in 2008.
Companies receiving assistance would be required to freeze pay
for most workers who made more than $425,000 in 2019 and to cut pay
for those making more than $3 million. The loans can't be forgiven,
and companies must also maintain 90% of their current workforce
through the end of September.
Another provision establishes a five-member commission, with
members appointed by Democrats and Republicans, required to submit
reports every 30 days on the effectiveness and transparency of
loans made by Treasury and the Fed.
The panel is similar to the Congressional Oversight Panel led by
Sen. Warren, then a Harvard law professor, to monitor bailouts
under the Troubled Asset Relief Program during the financial crisis
--Byron Tau and Theo Francis contributed to this article.
(END) Dow Jones Newswires
March 26, 2020 11:41 ET (15:41 GMT)
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