Unwanted Money

The Main Street Lending Program created by the Federal Reserve offered to lend to a wide swath of businesses. However, the program struggled to find takers (Wall Street Journal)

The Fed program relied on banks to make the loans. To encourage them to do so, it agreed to purchase 95% of each loan. The Fed set aside $600 billion for such loans. However, it ended up with 646 loans totaling $6.3 billion from July through November. Why? The WSJ explains,

The root failure, say banks and borrowers, was that if the loan a borrower wanted was attractive to a bank, the lender didn’t want to sell most of it to the Fed. But if a loan looked to be a dud, the bank was reluctant to hold any of it…Another reason the program wasn’t used more widely, they said, was that the Treasury’s Paycheck Protection Program ended up reaching more businesses that otherwise might have been candidates for a Main Street loan. The PPP provided loans of up to $10 million that can be forgiven if they’re used mainly to pay employees. The PPP has made $525 billion in loans.