Op-Ed: How to fix the Fed’s broken Main Street Lending Program (via latimesopinion)
The Federal Reserve’s Main Street Lending Program isn’t living up to expectations, as few banks are willing to provide the loans., even though their use has also been modest. By committing to be a backstop source of credit, and by purchasing debt in the secondary market, these programs help bigger businesses borrow in the bond market and reduce the risks to lenders.
For instance, the program could offer higher fees to banks to encourage them to participate and make riskier loans. The loans could also be made more flexible, with lower rates and longer terms, reducing costs for smaller firms that have fewer alternative credit sources. For example, many countries have established credit-guarantee programs that directly reduce the risks for lenders. This may do a better job of encouraging lending. To limit fiscal costs, guarantees could be limited to loans for smaller borrowers, for which liquidation likely has higher social costs.
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