Watchdog Members Urge Probe on Mnuchin’s Shift of Pandemic Funds

Members of a congressional watchdog panel have asked for an investigation into why Treasury Secretary Steven Mnuchin ended U.S. Federal Reserve emergency lending programs, according to a letter obtained by Bloomberg News.

The move represents the latest standoff between Republicans and Democrats over the use of almost half a trillion dollars in Covid-19 aid. Mnuchin said the Cares Act required him to terminate some central bank emergency lending facilities to prop up small businesses, non-profits and state and local government during the pandemic.

The letter, addressed to Treasury’s acting Inspector General Richard Delmar, and signed by the Congressional Oversight Commission’s two Democratic appointees, Bharat Ramamurti and Representative Donna Shalala of Florida, says there may be “irregularities” in how Mnuchin came to that conclusion, including that he may not have consulted legal counsel before determining that the program should wind down by the end of the year and may have changed his position after Joe Biden won the presidential election.

“We are concerned that the Treasury Department’s decision to terminate the programs may have preceded a comprehensive legal analysis of the Cares Act’s requirements, particularly given the inconsistencies with the Treasury Department’s prior, public positions,” Ramamurti and Shalala wrote.

Delmar said that he has received the request, is reviewing it and will respond to the requesters “as soon as possible.”

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, over which the secretary has greater discretion.

Lawmakers including House Speaker Nancy Pelosi have said that the actions amounted to a misreading of the law and were politically motivated to hamstring the incoming Biden administration.

Mnuchin said a Congressional Oversight Commission hearing earlier this month said that Treasury’s lawyers had provided verbal advice that the Cares Act required him to terminate the lending program by the end of the year. He said that the department was preparing a written memorandum to support that reasoning, but it has not yet been made public. Ramamurti said he was also preparing his own legal memo demonstrating that the funds can be used until 2026.

A Treasury Department representative on Wednesday night declined to say whether the secretary would release the memo.

Mnuchin said that Ramamurti’s interpretation was exploiting an “obvious loophole” in the statute and that he did not agree with the reading.

While the Fed said last month it preferred to keep the “full suite” of its backstops in place into 2021, Chairman Jerome Powell has repeatedly said that the Treasury secretary is the “sole” authority on interpreting the law and that the central bank had no dispute with the reading.

Mnuchin said that fresh legislation could revive the facilities that are being phased out. Congress is currently debating another round of economic relief, but extending the Fed lending programs has not so far not been part of the proposals.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.