The Fed reduced the minimum loan size to $500,000 from $1 million, and it expanded the pool of eligible borrowers to include companies with annual revenue up to $5 billion in 2019 and up to 15,000 employees.
Banks must keep 5% or 15% of the loan on their books, depending on the type of loan, which means they'll apply their normal covenants.
If banks are going to treat these loans as routine, their incentive is to lend only to the best customers without the Fed and keep 100% on the books.
The loans have to be repaid in four years, so many borrowers will have to live with these terms for five years.
All of which means the take-up rate on Main Street loans is likely to be lower than it should be.
One explanation for this penurious treatment is that the Treasury, which backstops the Fed loans, simply doesn't want to take losses.
Mr. Mnuchin would be more credible if he also objected to the risks on the loans the Fed is supplying to weak Wall Street credits packed into collateralized-loan obligations.
https://www.wsj.com/articles/the-main-street-fakeout-11588288799?mod=hp_opin_pos_1
Banks must keep 5% or 15% of the loan on their books, depending on the type of loan, which means they'll apply their normal covenants.
If banks are going to treat these loans as routine, their incentive is to lend only to the best customers without the Fed and keep 100% on the books.
The loans have to be repaid in four years, so many borrowers will have to live with these terms for five years.
All of which means the take-up rate on Main Street loans is likely to be lower than it should be.
One explanation for this penurious treatment is that the Treasury, which backstops the Fed loans, simply doesn't want to take losses.
Mr. Mnuchin would be more credible if he also objected to the risks on the loans the Fed is supplying to weak Wall Street credits packed into collateralized-loan obligations.
https://www.wsj.com/articles/the-main-street-fakeout-11588288799?mod=hp_opin_pos_1
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