Mnuchin Can Extend Fed Programs, Congress’s Research Agency Says

(Bloomberg) -- Democrats notched a small win in their bid to prove that there’s legal authority for the Federal Reserve emergency lending programs to extend past the end of the year: researchers at the Library of Congress agree with them.

The Congressional Research Service, a nonpartisan arm of the Library of Congress, said in a memo released Thursday that Treasury Secretary Steven Mnuchin has the authority to extend the lending programs if he so chooses and that the facilities can continue to make loans and purchase assets backstopped by the money already invested into the Fed vehicles.

Representatives James Clyburn, the No. 3 House Democrat, and Maxine Waters, the chairwoman of the House Financial Services Committee, asked the CRS to answer whether the Treasury secretary can extend the programs beyond Dec. 31, 2020 and whether some loans can continue to be made after that point.

“While litigants before a court could raise unanticipated or novel arguments not addressed here, a court presented with these questions would likely conclude that the answer to both questions is ‘yes,’” Jay B. Sykes, a legislative attorney for the CRS, said in the memo.

Democrats say that Republicans are incorrect in claiming that five of the central bank’s lending facilities must be terminated this year. Republicans, led by Senator Pat Toomey, say that the statute requires the facilities to end this month, and are seeking to insert a provision into an economic relief bill currently in negotiation that would explicitly say that the lending should end this year.

Toomey’s Push

Toomey has said that the lending programs, created in the March Cares Act, were always intended to be a short-term backstop for small businesses and credit markets and that efforts to wind them down have been ongoing for months. A spokesman for Toomey did not immediately respond to a request to comment on the CRS analysis.

Mnuchin in mid-November said he would pull unused money authorized by the March Cares Act to back Federal Reserve emergency-lending facilities at year’s end. The Treasury also unveiled plans to park those funds, along with other left-over lending authorization -- some $455 billion in all -- into the department’s general fund, over which Congress has authority, rather than the Exchange Stabilization Fund, which gives the secretary greater discretion to use.

Clyburn and Waters sent a letter to Mnuchin, along with the CRS analysis, requesting that he reverse his decision, because it “risks crippling the Fed’s emergency lending programs at a time when we should instead be using every tool at our disposal to support our economic recovery,” according to the letter.

A Treasury spokesperson declined to comment.

Fed Chair Jerome Powell has repeatedly noted that the facilities could be renewed using funding from the Treasury’s Exchange Stabilization Fund that pre-dated the infusion from the Cares Act. He made that point again in a Wednesday press briefing.

Senator Ron Wyden, the top Democrat on the Senate Finance Committee, said that members of his party are conferring with Powell Thursday on the impact of the limits that Republicans are seeking.

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