By Jon Hill

Law360 (November 10, 2020, 10:57 PM EST) -- A top Republican on the Senate Banking Committee said at a Tuesday hearing that the Federal Reserve's coronavirus emergency lending facilities have done their job and should be wound down sooner rather than later, even as Democrats on the committee urged further support for the economy.

Pennsylvania Republican Sen. Pat Toomey, who is in line to chair the powerful committee in 2021 if his party retains its Senate majority, said that while the Main Street Lending Program and other Fed facilities have been a "remarkable success" at supporting the flow of credit during the COVID-19 crisis, the economy's recent faster-than-expected progress toward recovery shows they've run their course.

"The private sector is providing the capital that's needed," Toomey said. "It's now time to terminate these programs … and, frankly, to take a victory lap that we have gotten our economy back on track. It's not done yet, but it is definitely heading very much in the right direction."

Working with the U.S. Treasury Department, the Fed has rolled out an alphabet soup of emergency lending facilities to mitigate the financial strains of the COVID-19 crisis, including programs to buy corporate debt, supply financing to state and local governments, channel credit to small and mid-sized businesses and support continued securitization activity.

Those facilities, which the Treasury has backstopped with funding allocated under the Coronavirus Aid, Relief and Economic Security Act, are currently set to expire at the end of the year, though the Fed and Treasury have extended them once before.

Whether they might be extended again is an open question. There is some debate about whether the CARES Act allows the Fed and Treasury to extend the lending facilities into next year, as well as whether there remains an economic need for the facilities.

For his part, Fed Chairman Jerome Powell told reporters recently that no decision has been reached and that officials are "just turning to this issue now." Democrats, meanwhile, have urged the Fed and Treasury to go ahead and extend the facilities to reassure markets and sustain support for the economy, which faces uncertain prospects amid surging COVID-19 infection rates and congressional deadlock over an additional relief package.

But at Tuesday's hearing, which featured testimony from the Fed's Vice Chair Randal Quarles as well as Federal Deposit Insurance Corp. Chairwoman Jelena McWilliams, Acting Comptroller of the Currency Brian Brooks and National Credit Union Administration Chairman Rodney Hood, Toomey pointed to recent declines in unemployment as a sign that the Fed facilities aren't needed like they once were.

"We've got work left to do, but how many economists anywhere in the world thought that we would have an unemployment rate below 7% at the end of October?" Toomey said. "People thought it would be 10% at the end of December, and it's not, so this series of programs did their job."

Still, Democrats on the committee argued that the economy isn't ready to stand on its own two legs yet and sought Quarles' endorsement for more fiscal aid from Congress to shore up the recovery, something that Powell has repeatedly pressed for in recent weeks.

But Quarles demurred, saying the "economy is recovering more robustly and more rapidly than we had expected" even as recently as September.

"I think probably the most accurate thing to say would be that additional support would accelerate a recovery that is underway, but I wouldn't want to say at this point that you'd say that it was necessary," Quarles said.

That response frustrated Sen. Jon Tester, D-Mont., who expressed disbelief that Quarles wouldn't view another round of fiscal stimulus as necessary when COVID-19 cases and hospitalizations are soaring again and threaten the return of normal business activity.

"I had a doctor tell me two, three weeks ago that January, February and March may be the toughest month this nation has ever endured, which is a hell of a statement," Tester said. "You really meant that, that there isn't any need for any additional stimulus?"

Quarles said that he didn't "want to understate at all the degree to which many people in the country continue to struggle as a result of the COVID event," but he stressed that the Fed was constrained in what support it could provide through its lending facilities and that it was Congress' place, not his, to decide whether there should be more economic support from the fiscal side.

"Oh, come on, come on, come on, come on," Tester replied. "I thought you wouldn't [bring] politics into this, and it seems to me that since the election, there's a different point of view now, and that kind of shit drives me crazy."

"No, it really is a result of the fact that the economy is recovering faster than any of us expected," Quarles said.

--Editing by Amy Rowe.

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