Federal Reserve Lending Programs: Credit Markets Served by the Programs Have Stabilized, but Vulnerabilities Remain
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GAO report GAO-22-104640, October 2021, to congressional committees, titled Federal Reserve Lending Programs: Credit Markets Served by the Programs Have Stabilized, but Vulnerabilities Remain. GAO reports that on July 30, 2021 the last of the 13 Federal Reserve lending facilities stopped purchasing assets or extending credit, and that as of September 1, 2021 the CARES Act facilities held about $19 billion in assets. It says available indicators suggest the facilities helped improve access to credit and liquidity in corporate and municipal credit markets, though those markets remain vulnerable. In a GAO survey of Main Street Lending Program borrowers, an estimated 88 percent said the program was very important in helping them maintain operations.
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“Federal Reserve Lending Programs: Credit Markets Served by the Programs Have Stabilized, but Vulnerabilities Remain.”
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United States Government Accountability Office
Report to Congressional Committees
FEDERAL RESERVE
October 2021
LENDING
PROGRAMS
Credit Markets Served
by the Programs Have
Stabilized, but
Vulnerabilities Remain
GAO-22-104640
October 2021
FEDERAL RESERVE LENDING PROGRAMS
Credit Markets Served by the Programs Have
Stabilized, but Vulnerabilities Remain
Highlights of GAO-22-104640, a report to
congressional committees
Why GAO Did This Study What GAO Found
On July 30, 2021, the last of the 13 The Board of Governors of the Federal Reserve System (Federal Reserve)
Federal Reserve lending facilities authorized 13 lending programs—known as facilities—to ensure the flow of credit
stopped purchasing assets or to various parts of the economy affected by the COVID-19 pandemic. The last of
extending credit. However, some of the nine facilities supported through CARES Act funding ceased purchasing
these facilities, including facilities that assets, such as corporate bonds, or extending credit by January 8, 2021. As of
were supported through Department of September 1, 2021, the CARES Act facilities held about $19 billion in assets. The
the Treasury funding appropriated Federal Reserve oversight reviews completed in December 2020 identified
under section 4003(b)(4) of the opportunities to enhance certain areas, including internal process and controls.
CARES Act, continue to hold
These reviews also identified areas for continued monitoring, such as
outstanding assets and loans. The
cybersecurity and conflicts of interest. GAO found that Federal Reserve’s plans
Federal Reserve will continue to
monitor and manage the facilities until
for ongoing monitoring of the facilities align with federal internal control standards
these assets and loans are no longer for ongoing monitoring of an entity’s internal control system.
outstanding. Available indicators suggest the facilities helped improve access to credit and
liquidity in the corporate and municipal credit markets. For example, corporate
The CARES Act included a provision bond spreads (which reflect borrowing costs) have remained low, and municipal
for GAO to periodically report on spreads have decreased to prepandemic levels. Also, officials from state and
section 4003 loans, loan guarantees, local entities that participated in the Municipal Liquidity Facility (which targeted
and investments. This report examines
the municipal bond market) generally said the facility was beneficial and helped
the Federal Reserve’s continued
restore investor confidence in the municipal bond market. However, corporate
oversight and monitoring of the
CARES Act facilities; what available and municipal credit markets remain vulnerable. For corporate credit markets,
evidence suggests about the facilities’ corporate bonds outstanding remain elevated and the high level of debt leaves
effects on corporate credit markets, businesses vulnerable to distress. Municipal credit markets also remain
states and municipalities, and small vulnerable because of the pandemic’s extended duration, which may adversely
businesses; and the characteristics of affect local economies. According to surveys of small and independent
Main Street Lending Program businesses and lenders, access to credit has improved, but recovery remains
participants, among other things. slow, including for businesses in the services sector.
Loans made under the Main Street facilities (which targeted small and mid-sized
GAO reviewed applicable laws and
agency and Federal Reserve Bank
businesses and nonprofits) were concentrated among small for-profit businesses
documentation; analyzed agency and in certain economic sectors, such as restaurants. According to GAO’s
other data on the facilities and credit generalizable survey of Main Street borrowers, an estimated 88 percent said that
markets; interviewed Federal Reserve the program was “very important” in helping them maintain operations. Women-
and Treasury officials and owned businesses participated at lower rates compared to their representation
representatives of state and local among U.S. businesses. Although estimates of veteran- and minority-owned
governments; and conducted a business participation were somewhat lower compared to their representation
generalizable survey of for-profit Main among U.S. businesses, the differences were not statistically significant (see
Street borrowers. figure).
Estimated Participation of Business Types in the Main Street Lending Program
View GAO-22-104640. For more information,
contact Michael E. Clements at (202) 512-
8678 or clementsm@gao.gov.
United States Government Accountability Office
Contents
Letter 1
Background 4
CARES Act Facilities Ceased Extending Credit and Purchasing
Assets Based on Legal Requirements 9
The Federal Reserve’s Oversight of Facilities Identified
Improvement Opportunities and Focus Areas for Ongoing
Monitoring 11
Corporate Credit Market Risks Have Remained Low since Mid-
2020, but Longer-Term Uncertainties Remain 16
Municipal Credit Market Outlook Remains Uncertain, and
Participants Found the Municipal Liquidity Facility Beneficial 28
Small Businesses’ Access to Credit Has Improved, and the Main
Street Loans Were Concentrated in Certain Sectors 33
Agency Comments 45
Appendix I Objectives, Scope, and Methodology 48
Appendix II Selected Indicators of Credit Markets for Corporations, State and
Local Governments, and Small Businesses 53
Appendix III Results of GAO’s Survey of Main Street Lending Program
Borrowers 60
Appendix IV GAO Contact and Staff Acknowledgments 63
Tables
Table 1: Summary of Phase Three Oversight Focus Areas
Identified by the Federal Reserve’s Division of Reserve
Bank Operations and Payment Systems 13
Table 2: Total Amount Loaned through the Main Street Lending
Program and Amount Loaned Relative to Gross Industry
Output, by Economic Sector 40
Table 3: Survey Population, Sample Size, and Percentage of Valid
Survey Responses 60
Page i GAO-22-104640 Federal Reserve Facilities
Table 4: Is your business minority-owned? (A business is minority-
owned if it is at least 51 percent owned and controlled by
individuals who identify as members of one of the
following groups: Black Americans, Hispanic Americans,
Native Americans, Asian Pacific Americans, and
Subcontinent Asian Americans.) 60
Table 5: Is your business women-owned? (A business is women-
owned if it is at least 51 percent owned and controlled by
individuals who identify as women.) 60
Table 6: Is your business veteran-owned? (A business is veteran-
owned if it is at least 51 percent owned and controlled by
one or more veterans.) 61
Table 7: How important was a Main Street loan in helping your
business maintain ongoing operations? 61
Table 8: How would you rate the process of finding a lender that
offered Main Street loans? 61
Table 9: Approximately how many full-time equivalent employees
does your business currently have? 62
Figures
Figure 1: Activity Dates of Federal Reserve Lending Facilities
Implemented during the COVID-19 Pandemic 8
Figure 2: Current and Forward Measures of Spreads on Short-
Term Credit, January 2019–July 2021 18
Figure 3: Year-Over-Year Commercial Paper Outstanding for
Large Nonfinancial Businesses, January 2019–July 2021 19
Figure 4: Spreads on Corporate Bonds, January 2019–July 2021 21
Figure 5: Annual Cumulative Issuances of Corporate Bonds,
January 2019–July 2021 22
Figure 6: Nonfinancial Corporate Bonds Outstanding, First Quarter
2019–Second Quarter 2021 23
Figure 7: Year-Over-Year Corporate Bankruptcy Filings with
Liabilities Exceeding $50 Million, January 2019–July
2021 24
Figure 8: The Secondary Market Corporate Credit Facility’s
Methodology for Purchasing Corporate Bonds 26
Figure 9: Corporate Bonds Purchased by the Secondary Market
Corporate Credit Facility, by Sector, as of May 31, 2021 27
Figure 10: Spreads on Municipal Bonds, January 2019–July 2021 29
Figure 11: Annual Cumulative Issuances of Municipal Bonds,
January 2019–July 2021 30
Page ii GAO-22-104640 Federal Reserve Facilities
Figure 12: Small Businesses’ Views on Credit Conditions, January
2019–July 2021 34
Figure 13: Banks’ Lending Conditions for Small Business Loans,
First Quarter 2019–Third Quarter 2021 36
Figure 14: Loans Made Through the Main Street Lending
Program, by Loan Size 39
Figure 15: Total Dollar Amount Loaned through the Main Street
Lending Program, by Metropolitan Area 42
Figure 16: Estimated Participation of Business Types in the Main
Street Lending Program, Compared to Their
Representation among U.S. Businesses 44
Figure 17: Annual Cumulative Triparty Repurchase Agreements of
Corporate Securities, January 2019–June 2021 54
Figure 18: Spreads on 90-day Commercial Paper for Large
Nonfinancial Businesses, January 2019–July 2021 55
Figure 19: Year-Over-Year Prime Money Market Funds
Outstanding, January 2019–June 2021 56
Figure 20: Annual Cumulative Issuances of Asset-Backed
Securities, January 2019–July 2021 57
Figure 21: State and Local Government Bonds Outstanding, First
Quarter 2019–Second Quarter 2021 58
Figure 22: Small Business Loans Outstanding, First Quarter
2019–First Quarter 2021 59
Page iii GAO-22-104640 Federal Reserve Facilities
Abbreviations
COVID-19 Coronavirus Disease 2019
Federal Reserve Board of Governors of the Federal Reserve System
FRA forward rate agreement
LIBOR London Interbank Offered Rate
NAICS North American Industry Classification System
NFIB National Federation of Independent Business
OIS overnight indexed swap
RBOPS Division of Reserve Bank Operations and Payment
Systems
VRDN variable rate demand note
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Page iv GAO-22-104640 Federal Reserve Facilities
Letter
441 G St. N.W.
Washington, DC 20548
October 19, 2021
Congressional Committees
The Coronavirus Disease 2019 (COVID-19) pandemic resulted in
substantial damage to the global economy and affected the stability and
functioning of credit markets. In response, from March to September
2020, the Board of Governors of the Federal Reserve System (Federal
Reserve) authorized 13 emergency lending programs—known as
facilities—to ensure the flow of credit to various parts of the economy
affected by the pandemic. 1
Nine of the facilities received CARES Act-appropriated funds that were
intended to support the flow of credit to employers, consumers, small and
mid-sized businesses, state and local governments, and nonprofit
organizations. 2 We refer to these nine facilities as CARES Act facilities.
Additionally, the Federal Reserve established four emergency lending
facilities that were not supported through CARES Act-appropriated funds
(we refer to these as non-CARES Act facilities), which were intended to
serve various markets and credit needs. The CARES Act facilities ceased
purchasing assets or extending credit by January 8, 2021. On July 30,
2021, the last of the non-CARES Act facilities stopped purchasing assets
or extending credit.
Although the Federal Reserve’s facilities have stopped purchasing assets
or extending credit, some of these facilities continue to hold large
amounts of outstanding assets and loans. As of September 1, 2021, the
CARES Act-supported facilities had about $19.3 billion in outstanding
asset purchases, of which about $13.5 billion were held by the Main
Street Lending Program (which targeted small and mid-sized businesses
1The facilities are authorized under section 13(3) of the Federal Reserve Act and
approved by the Secretary of the Treasury. Section 13(3) of the Federal Reserve Act
permits the Federal Reserve to provide emergency lending.
2In response to the national public health and economic threats caused by COVID-19,
several relief laws have been enacted, including the CARES Act in March 2020. To
provide economic relief, section 4003(b)(4) of the act made available at least $454 billion
for the Department of the Treasury to support the Federal Reserve in establishing
facilities. Pub. L. No. 116-136, § 4003(b)(4), 134 Stat. 281, 470 (2020).
Page 1 GAO-22-104640 Federal Reserve Facilities
and nonprofit organizations). 3 For the non-CARES Act facilities, as of
August 31, 2021, the Paycheck Protection Program Liquidity Facility—the
facility established to encourage use of the Paycheck Protection
Program—held about $74.8 billion in outstanding loans; the other three
non-CARES Act facilities had repaid all of their loans to the Federal
Reserve Banks. 4 The Federal Reserve will continue monitoring and
managing the facilities until no more assets or loans are outstanding.
Section 4026(f) of the CARES Act contains a provision for us to review
the loans, loan guarantees, and other investments provided under section
4003 of the CARES Act and report annually until 1 year after no
investments made under section 4003 remain outstanding. 5 We
expanded our review to include the Federal Reserve’s facilities not
supported by CARES Act section 4003 because they complete the
Federal Reserve’s full response to the pandemic using its section 13(3)
authority. 6
This report examines (1) why the CARES Act facilities ceased extending
credit and purchasing assets by January 8, 2021; (2) the Federal
Reserve’s oversight and monitoring of the CARES Act facilities; (3) what
available evidence suggests regarding the facilities’ effects on corporate
credit and related markets; (4) what available evidence suggests
regarding the facilities’ effects on states and municipalities, and entities’
experiences in accessing the Municipal Liquidity Facility; and (5) what
3The Main Street Lending Program comprised five facilities: Main Street New Loan
Facility, Main Street Priority Loan Facility, Main Street Expanded Loan Facility, Nonprofit
Organization New Loan Facility, and Nonprofit Organization Expanded Loan Facility.
4Since March 2020, Congress has provided commitment authority of about $814 billion for
the Paycheck Protection Program under the Small Business Administration’s largest
guaranteed loan program—its 7(a) small business lending program. The Paycheck
Protection Program loans, made by lenders but guaranteed 100 percent by the Small
Business Administration, are low interest (1 percent) and fully forgivable if certain
conditions are met, such as using a minimum percentage of the loan forgiveness amount
for payroll costs.
5See GAO, Federal Reserve Lending Programs: Use of CARES Act-Supported Programs
Has Been Limited and Flow of Credit Has Generally Improved, GAO-21-180 (Washington,
D.C.: Dec. 10, 2020).
6We also regularly issue government-wide reports on the federal response to COVID-19.
For the latest report, see GAO, COVID-19: Continued Attention Needed to Enhance
Federal Preparedness, Response, Service Delivery, and Program Integrity, GAO-21-551
(Washington, D.C.: July 19, 2021). Our next government-wide report will be issued in
October 2021, and will be available on GAO’s website at https://www.gao.gov/coronavirus.
Page 2 GAO-22-104640 Federal Reserve Facilities
available evidence suggests about trends in small businesses’ access to
credit, and the characteristics of Main Street Lending Program
participants.
To address the first objective, we reviewed Department of the Treasury
and Federal Reserve documentation, including correspondence from the
Treasury Secretary regarding the facilities. We also interviewed Treasury
and Federal Reserve officials.
To address the second objective, we analyzed documentation from the
Federal Reserve’s Division of Reserve Bank Operations and Payment
Systems (RBOPS) and relevant Federal Reserve Banks. This included
their policies and procedures for the monitoring and controls of the
CARES Act facilities and summaries of their completed reviews of the
facilities. We also compared agency controls against selected federal
internal control standards. 7 Additionally, we reviewed the Federal
Reserve’s periodic reports and financial statements for updates on
potential and actual losses incurred by the Federal Reserve facilities.
To address the third, fourth, and fifth objectives, we analyzed the most
recently available data on indicators of credit markets affected by the
facilities. To identify and select potential indicators, we reviewed prior
GAO work, reports and data from the Federal Reserve Board and Federal
Reserve Banks, and reports and data from Bloomberg and the Securities
Industry and Financial Markets Association. For our fourth objective, we
interviewed the three entities (state or local governments or authorities)
that participated in the Municipal Liquidity Facility. We also interviewed
the three additional entities that either filed a notice of intent or
communicated significant interest in accessing the facility but did not
participate in the facility.
For our fifth objective, we analyzed the most recently available survey
data on small business owners and lenders from the National Federation
of Independent Business, the Federal Reserve Board, and the Federal
Reserve Banks. Additionally, we obtained and analyzed relevant Federal
Reserve data to determine characteristics of the Main Street Lending
Program’s participants, their geographic dispersion, the distribution of
loan amounts, and their industry sector. We interviewed associations
representing women- or minority-owned businesses to obtain their
7GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
(Washington, D.C.: September 2014).
Page 3 GAO-22-104640 Federal Reserve Facilities
perspectives on the Main Street Lending Program. We administered a
web-based survey to a sample of for-profit Main Street borrowers. We
obtained 266 responses and a survey response rate of 42 percent, and
we determined these results to be generalizable to the population of
businesses that participated in the Main Street Lending Program. 8
For all objectives, where relevant, we also reviewed relevant federal laws
and regulations, facilities’ term sheets, and press releases announcing
updates to the facilities’ terms.
To assess the reliability of the data sources and indicators for the third,
fourth, and fifth objectives, we reviewed documentation on data collection
methodology and reviewed prior GAO work. We also reviewed the data
dictionary for Main Street loan data and performed electronic testing of
certain key data fields. We found that, collectively, the indicators were
sufficiently reliable for the purposes of providing a general sense of how
credit markets have performed and for reporting on Main Street loan data.
See appendix I for more information on our scope and methodology,
including our survey methodology. See appendix II for data on credit
market indicators and appendix III for results of our web-based survey.
We conducted this performance audit from November 2020 to October
2021 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
Background
Overview of the Federal The Federal Reserve Act established the Federal Reserve System as the
Reserve System and country’s central bank. 9 The Federal Reserve System consists of three
Emergency Lending parts: the Board of Governors of the Federal Reserve System, the
Authority
8See app. I for more information on our survey methodology.
9Federal Reserve Act, Pub. L. No. 63-43, 38 Stat. 251 (1913).
Page 4 GAO-22-104640 Federal Reserve Facilities
Federal Reserve Banks, and the Federal Open Market Committee. 10 The
Federal Reserve Board is a federal agency located in Washington, D.C.,
that oversees the operations of the Reserve Banks and shares with them
the responsibility for supervising and regulating certain financial
institutions and activities. The Federal Reserve System is divided into 12
districts, and each district is served by a regional Reserve Bank.
The Federal Reserve Board has the authority to authorize the Reserve
Banks to extend credit more broadly than usual during emergencies. 11
Specifically, under section 13(3) of the Federal Reserve Act, during
unusual and exigent circumstances the Federal Reserve can authorize
Reserve Banks to extend credit to a broader range of borrowers. 12
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection
Act added restrictions to the Federal Reserve’s section 13(3) authority. 13
The act required the Federal Reserve Board to, among other things,
implement any future emergency lending through facilities with broad-
based eligibility; required that emergency lending assistance be for the
purpose of providing liquidity to the financial system and not to aid a
failing financial company; and required the approval of the Secretary of
the Treasury prior to establishing a facility. Additionally, the act required
the Federal Reserve Board to promulgate a rule governing the use of
section 13(3) emergency lending authority—which it did on December 18,
2015, by amending Regulation A. 14
10The Federal Open Market Committee consists of the seven members of the Board of
Governors, the President of the Federal Reserve Bank of New York, and four other
Reserve Bank presidents who serve on a rotating basis. The committee is responsible for
directing open market operations to influence the total amount of money and credit
available in the economy.
11Reserve Banks typically lend to banks through discount window programs based on
established statutory criteria. 12 U.S.C. § 347b(a). The discount window is a Federal
Reserve lending program that allows eligible institutions to borrow money, usually on a
short-term basis, at an above-market rate to meet temporary liquidity shortages.
1212 U.S.C. § 343(3). During the 2007–2009 financial crisis, the Federal Reserve invoked
its section 13(3) authority to create emergency programs to stabilize financial markets and
avert the failures of a few individual institutions.
13Pub. L. No. 111-203, § 1101, 121 Stat. 1376, 2113 (2010).
1480 Fed. Reg. 78959, amending 12 C.F.R. Part 201 (Regulation A). Regulation A
governs extensions of credit by Federal Reserve Banks.
Page 5 GAO-22-104640 Federal Reserve Facilities
Federal Reserve In response to the economic disruptions caused by the COVID-19
Emergency Lending pandemic, the CARES Act authorized at least $454 billion for Treasury to
support the Federal Reserve in establishing facilities to provide liquidity to
Facilities in Response to
the financial system. With the Secretary of the Treasury’s approval, the
the COVID-19 Pandemic Federal Reserve used its authority under section 13(3) to authorize 13
emergency lending facilities. The Federal Reserve cited a number of
factors in determining that unusual and exigent circumstances existed,
including disruption in the financial markets, reduced availability of credit,
a heightened need for credit, and an increase in business expenditures.
Nine of the 13 facilities received support from CARES Act funds:
• Primary Market Corporate Credit Facility and Secondary Market
Corporate Credit Facility. These two facilities were designed to
support large businesses by purchasing qualifying corporate bonds
and other eligible assets, including corporate bond exchange-traded
funds.
• Main Street Lending Program. Under this program, five facilities
were designed to support small and mid-sized for-profit businesses
and nonprofit organizations by purchasing participations in eligible
loans. 15
• Municipal Liquidity Facility. This facility was designed to support
states, certain counties, municipalities, multistate entities, and
revenue bond issuers by purchasing eligible notes that these entities
issued.
• Term Asset-Backed Securities Loan Facility. This facility was
designed to support the flow of credit consumers and businesses by
providing nonrecourse loans to U.S. companies secured by qualifying
asset-backed securities generally backed by recently originated
consumer and business loans. 16
To implement the CARES Act-supported facilities, the Federal Reserve
used legal entities known as special purpose vehicles to purchase
qualifying assets from, or initiate lending to, eligible entities. In this report,
15The Main Street Lending Program comprised five facilities: Main Street New Loan
Facility, Main Street Priority Loan Facility, Main Street Expanded Loan Facility, Nonprofit
Organization New Loan Facility, and Nonprofit Organization Expanded Loan Facility.
16A nonrecourse loan does not allow the lender to pursue anything other than the
borrower’s collateral, should the borrower default on a loan. The Term Asset-Backed
Securities Loan Facility was previously used during the 2007–2009 financial crisis.
Page 6 GAO-22-104640 Federal Reserve Facilities
we refer to assets purchased and loans extended by special purpose
vehicles generally as transactions by the CARES Act facilities. 17 The
CARES Act required that the CARES Act facilities purchase obligations
from and make loans to only businesses created or organized in the
United States, and that had significant operations and a majority of
employees in the United States. 18
The five Main Street facilities required borrowers to comply with additional
CARES Act requirements, including limitations on executive
compensation, dividends, and equity buybacks. 19 Overall, the CARES Act
facilities could support up to $1.95 trillion in transaction volume, and
Treasury disbursed $102.5 billion in CARES Act funds to support the
facilities. Over the life of the CARES Act facilities, they conducted about
$41 billion in transactions.
The Federal Reserve, with the Treasury Secretary’s approval, also
established four facilities that did not receive CARES Act-appropriated
funds. 20 These facilities were designed to provide liquidity to the financial
sector and businesses. All four facilities stopped purchasing assets or
extending credit by July 30, 2021 (see fig. 1). The non-CARES Act
facilities include the following:
• Commercial Paper Funding Facility. This facility served as a
funding backstop—an alternative funding source for borrowers unable
to readily obtain credit during economic downturns—to provide
liquidity for eligible U.S. issuers by purchasing their commercial paper.
17Federal Reserve Banks lent money on a recourse basis to special purpose vehicles that,
in turn, made purchases and loans, as detailed in this report. A recourse loan allows the
lender to pursue the borrower’s assets in the event of a default. Treasury used CARES
Act funds in making equity investments in the special purpose vehicles.
18Pub. L. No. 116-136, § 4003(c)(3)(C), 134 Stat. 281, 473 (2020).
19Pub. L. No. 116-136, §§ 4003, 4004, 134 Stat. 281, 472, 476 (2020).
20The Federal Reserve reinstated three emergency lending facilities that had previously
been used during the 2007–2009 financial crisis: the Commercial Paper Funding Facility,
the Money Market Mutual Fund Liquidity Facility, and the Primary Dealer Credit Facility.
Page 7 GAO-22-104640 Federal Reserve Facilities
• Money Market Mutual Fund Liquidity Facility. This facility assisted
money market funds in meeting redemption demands by making
nonrecourse loans available to eligible financial institutions. 21
• Paycheck Protection Program Liquidity Facility. This facility
supported institutions’ lending to small businesses under the
Paycheck Protection Program by making loans to eligible institutions
and taking Paycheck Protection Program loans that institutions made
to small businesses as collateral.
• Primary Dealer Credit Facility. This facility provided support to
primary dealers by making loans in exchange for collateral. 22
Figure 1: Activity Dates of Federal Reserve Lending Facilities Implemented during the COVID-19 Pandemic
The Federal Reserve Banks administered the Federal Reserve’s 13
facilities. The Federal Reserve’s Division of Reserve Bank Operations
and Payment Systems (RBOPS), which oversees the policies and
operations of the Reserve Banks, is primarily responsible for the oversight
of the Federal Reserve’s facilities. To fulfill its responsibilities for
21The Money Market Mutual Fund Liquidity Facility was very similar in structure to the
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility used
during the 2007–2009 financial crisis, but it accepted a broader range of assets.
22The Primary Dealer Credit Facility differed from the facility used during the 2007–2009
financial crisis, most notably in that it allowed loans up to 90 days, while the earlier version
of the facility offered only overnight loans.
Page 8 GAO-22-104640 Federal Reserve Facilities
overseeing the facilities on behalf of the Federal Reserve System,
RBOPS developed and documented a general framework and approach
to oversight, consisting of three phases:
• Phase one. During its initial phase of oversight, RBOPS, through
communication with Reserve Bank staff, focused on providing
assistance in setting up the various facilities quickly.
• Phase two. As the facilities became operational, RBOPS reviewed
the facilities’ established governance structures, process workflows,
and internal control design. Its objectives were to help the Reserve
Banks identify any enhancements early and obtain reasonable
assurance that the design of controls and processes was adequate to
ensure the facilities’ effective operation.
• Phase three. Following the completion of phase two reviews, RBOPS
plans to maintain ongoing monitoring activities. These include
continued communication with Reserve Banks and periodic reviews of
facility operations and controls to obtain reasonable assurance that
controls are present and are functioning in a manner that addresses
identified risks.
In the Treasury Secretary’s November 19, 2020, letter to the Federal
CARES Act Facilities Reserve Chair, the Secretary, citing his understanding of the CARES Act,
Ceased Extending determined that facilities supported through CARES Act funding could not
be extended beyond December 31, 2020. Specifically, the Secretary
Credit and referred to his understanding of the congressional intent outlined in
Purchasing Assets Section 4029 of the CARES Act, which specified that the authority
provided to the Federal Reserve in the CARES Act to make new loans,
Based on Legal loan guarantees, and other investments would generally terminate on
Requirements December 31, 2020. 23 According to Treasury officials, the Treasury Office
of the General Counsel at that time examined whether the CARES Act-
appropriated funds could support new loans or purchase new assets
beyond December 31, 2020, and determined that they could not.
In his letter, the Secretary also stated that, in his view, the CARES Act
facilities had achieved their objective. As examples, he cited improved
financial conditions, including that investment-grade bonds, municipal
bonds, and other securities’ spreads (which reflect the premium
23Section 4029 of the CARES Act does allow for loans, loan guarantees, and other
investments outstanding on December 31, 2020, to be modified, restructured, or otherwise
amended after that date, provided that loans or loan guarantees are not extended beyond
5 years from their initial origination date.
Page 9 GAO-22-104640 Federal Reserve Facilities
borrowers pay investors for the risk of loss) had decreased; that bond
issuance volumes had reached or exceeded prepandemic levels; and that
banks had the lending capacity to meet borrowing needs.
Regulation A—which governs emergency lending by the Federal Reserve
and requires the Treasury Secretary’s approval for a facility to be
renewed—does not require that the Federal Reserve consider extending
facilities beyond their current end dates. Instead, Regulation A requires
that the Federal Reserve terminate lending by a facility promptly upon
finding that a facility’s continuation is no longer warranted by market
conditions, which the Federal Reserve is required to review at least every
6 months. 24 In the case of the CARES Act facilities, the Treasury
Secretary’s November 19, 2020, determination meant that the facilities
were set to end on their existing end date of December 31, 2020.
Because Regulation A does not require the Federal Reserve to consider
extending facilities beyond their current end dates, and because the
Secretary’s determination meant he would not approve any extensions,
the Federal Reserve did not need to take any specific action to consider
extending or terminating lending by the facilities. Additionally, because
the Federal Reserve’s prior review of market conditions was within 6
months of the facilities’ end date of December 31, 2020, the Federal
Reserve was not required to perform another periodic review of market
conditions.
The Consolidated Appropriations Act, 2021, which was enacted on
December 27, 2020, codified the December 31, 2020, deadline for the
CARES Act facilities, with the exception of the Main Street facilities, which
it extended until January 8, 2021. According to Federal Reserve officials,
the extension of the Main Street facilities allowed for the processing of
previously submitted applications. The Consolidated Appropriations Act,
2021 also rescinded most of Treasury’s funding for the CARES Act
facilities. In accordance with the act, of the $102.5 billion that Treasury
24Market conditions the Federal Reserve reviews include the existence of unusual and
exigent circumstances, the extent of usage of a facility, the extent to which the continuing
authorization of the program or facility facilitates restoring or sustaining confidence in
relevant financial markets, and the ongoing need for the liquidity support provided by a
facility. If the Federal Reserve’s review finds that a facility should be extended, Regulation
A requires a vote by at least five members of the Federal Reserve Board that unusual and
exigent circumstances exist and that conditions warrant the facility’s continuation, along
with the Treasury Secretary’s approval. For example, in July 2020, the Board determined
that unusual and exigent circumstances continued to exist and that the need for facilities
remained. As a result, the Board, with the Treasury Secretary’s approval, extended all of
the CARES Act facilities set to end in September 2020 through December 31, 2020.
Page 10 GAO-22-104640 Federal Reserve Facilities
had disbursed to support the facilities, the Federal Reserve returned a
little more than $62 billion to Treasury, leaving a little over $40 billion in
equity to cover any potential losses the facilities incur. According to
Treasury officials, Treasury used returned funds to repay borrowings
under the Federal Credit Reform Act, and those funds were deposited in
the General Fund. 25
The Federal
Reserve’s Oversight
of Facilities Identified
Improvement
Opportunities and
Focus Areas for
Ongoing Monitoring
Federal Reserve’s As of December 2020, RBOPS had completed the second phase of its
Reviews of Facilities three-phase reviews for all facilities. RBOPS’s phase two reviews broadly
focused on the facilities’ governance structures and processes and
Identified Opportunities to
covered a range of areas related to governance and risk, collateral and
Enhance Processes and credit management, processes and controls, and accounting and
Controls reporting.
RBOPS noted opportunities for enhancements in processes and controls
for both CARES Act and non-CARES Act facilities and communicated
these opportunities to facility management teams at relevant Reserve
Banks and the Federal Reserve Board. According to RBOPS’s summary
documents, although the reviews identified opportunities for
enhancements in certain facilities, the overall finding was that the design
of controls and processes was sufficient to provide reasonable assurance
that operations are being conducted effectively for each of the facilities.
25The Federal Credit Reform Act of 1990 requires agencies to estimate the cost to the
government of extending or guaranteeing credit. This cost, referred to as subsidy cost,
equals the net present value of estimated cash flows from the government (e.g., loan
disbursements and claim payments to lenders) minus estimated cash flows to the
government (e.g., loan repayments, interest payments, fees, and recoveries on defaulted
loans) over the life of the loan, excluding administrative costs. Treasury borrowed under
the Federal Credit Reform Act to support the CARES Act facilities.
Page 11 GAO-22-104640 Federal Reserve Facilities
RBOPS identified several enhancement opportunities in the compliance
and governance, internal process and controls, and credit and collateral
focus areas. These enhancement opportunities focused primarily on the
need to more fully document processes and procedures. RBOPS also
noted opportunities to improve a facility’s credit evaluation model and to
document facilities’ comprehensive risk assessments. Some of these
processes and documentation were not finalized or formalized early on
because, according to some Federal Reserve Bank officials, the initial
focus was on setting up the facilities expeditiously to provide timely
assistance to struggling businesses during the pandemic. The officials
said they have begun addressing RBOPS’s opportunities for
enhancements. RBOPS plans to follow up on the status of these
enhancement opportunities as part of its phase three oversight reviews.
Federal Reserve Identified As part of RBOPS’s third phase of its oversight framework, it has
Focus Areas for Ongoing identified internal control focus areas for ongoing monitoring. According to
RBOPS’s documentation, the primary purpose of the ongoing monitoring
Monitoring and Plans to
is to obtain reasonable assurance that controls are present and
Apply a Risk-Based functioning in a manner that addresses identified risks at the facilities. In
Approach Tailored to Each planning phase three’s oversight activities, RBOPS considered the results
Facility of previous oversight activities, updated risk assessments, the strategic
goals of each facility, and analysis of each facility’s past risk events to
identify and tailor particular focus areas for each facility. Additionally,
RBOPS plans to periodically reassess operational and risk factors to
calibrate facilities’ oversight, as needed.
In preparing for its phase three reviews, RBOPS developed a planning
document that identifies internal control focus areas for continued
monitoring. According to this document, RBOPS will develop detailed
work plans for each focus area and will periodically review and update
them as necessary. RBOPS identified the focus areas through a
combination of top-down and bottom-up approaches, such as using
information obtained from prior conversations and interactions with
stakeholders (as an example of top-down) and using the results of phase
one and phase two activities (as an example of bottom-up). In its planning
document, RBOPS identifies nine focus areas for ongoing oversight
attention during its phase three reviews (see table 1).
Page 12 GAO-22-104640 Federal Reserve Facilities
Table 1: Summary of Phase Three Oversight Focus Areas Identified by the Federal Reserve’s Division of Reserve Bank
Operations and Payment Systems
Focus area Reason for inclusion
Collateral and asset management Management of the underlying collateral, which includes decision-making on matters such as
asset dispositions, loan modifications, and valuations, will remain important.
Certifications The certifications Reserve Banks receive from program participants are a key element of the
banks’ accountability for determining program eligibility and controlling the risk of fraud. The
Reserve Banks’ procedures for maintaining, monitoring, and validating certifications received
from program participants should be sufficient to reasonably demonstrate accountability.
Conflicts of interest The Reserve Banks’ policies and controls to prevent and monitor conflicts of interest among
those charged with managing the programs, including third parties, serve as an important
element of the Reserve Banks’ accountability by controlling the risk of fraud and protecting the
public interest that programs be managed for the benefit of taxpayers.
Risk management The Reserve Banks’ overall risk management program for the facilities is important to
understanding and responding to risks throughout the life of the programs.
Vendor management Because many of the programs use third parties to assist in significant aspects of facility
operations, effective vendor management programs are important to managing the relationships
over their life cycle from planning through off-boarding.
Cybersecurity, resiliency, and data Well-controlled information security and data management are important to mitigating strategic
management and reputational risk.
Accounting and reporting Accounting policies and data should be appropriately considered and designed in a manner that
ensures compliance with accounting principles and facilitates financial reporting.
Information systems, process, and Phase two review observations for the information systems, processes, and resources focus
resources area are consistent with risks and objectives associated with the cybersecurity, resiliency, and
data management focus area for phase three.
Internal controls Internal control design and effectiveness are subject to ongoing audit attention from the relevant
Reserve Banks’ internal audit functions and external auditor.
Source: GAO analysis of documentation from the Board of Governors of the Federal Reserve System (Federal Reserve). | GAO-22-104640
RBOPS has documented work plans for six of the nine focus areas listed
above, detailing the methodology for continuous monitoring of each area.
The three focus areas that RBOPS has not prepared work plans for are
accounting and reporting; information systems, process, and resources;
and internal controls. RBOPS has stated that the procedures for these
three focus areas are either included in other focus areas’ work plan
procedures or will be carried out by other entities, such as the relevant
Reserve Banks’ internal and external auditors.
According to RBOPS’s phase three planning documentation, because of
limited oversight resources, the work plans will employ a differentiated
and risk-based approach tailored to risks stemming from each facility.
Additionally, the approach may include coordinating with a Reserve
Bank’s internal audit functions and external auditors, and possibly
engaging third-party expertise.
Page 13 GAO-22-104640 Federal Reserve Facilities
Our review of each work plan found that the approach was generally
consistent with the phase three planning documentation. Moreover, we
found that facilities with the same focus area risks often had a similar
monitoring approach. For example, the work plan for the collateral and
asset management focus area noted that RBOPS will use the same
approach to oversee third parties that provide collateral services for the
Term Asset-Backed Securities Loan Facility and the Main Street facilities.
Additionally, the work plans also described a general approach to perform
oversight activities that applied to all facilities with similar risk areas
identified in the Phase 2 review. According to the planning documents,
RBOPS will consider the following criteria when determining how to
allocate resources to the focus areas:
• Direct interest. Consider and prioritize facilities where the Federal
Reserve Board or RBOPS has a direct role. This includes cases
where RBOPS has a direct role, such as policy determination, credit
risk, accounting policy, or financial statement preparation, in contrast
to an oversight role, such as oversight of vendor management activity
or information security.
• Risk level. Consider the residual risk of each possible oversight focus
area and its impact to the overall program effort to determine
appropriate RBOPS oversight and participation.
• Subject-matter expertise. Consider tasks where RBOPS has a high
level of subject-matter expertise.
• Commonality. Consider tasks and matters that are common across
several or all facilities, allowing RBOPS to be in a position to better
identify and influence the direction of the common issues, as
compared to entities focused on oversight activities at individual
facilities.
• Development. Consider areas where active participation will be
useful from the perspective of long-term RBOPS staff development.
Throughout the phase three monitoring, RBOPS plans to issue an interim
report every 6 months summarizing the scope of its oversight activities
and findings. The plan also states that RBOPS may periodically change
the timing of the interim report, as approved by internal oversight groups
and advisors. According to RBOPS, any findings or issues identified in
the interim report will be communicated to the relevant facility’s
management team in a timely manner.
Generally, we found that RBOPS’s phase three review plans for ongoing
monitoring of the facilities align with federal internal control standards for
Page 14 GAO-22-104640 Federal Reserve Facilities
ongoing monitoring of an entity’s internal control system. 26 According to
the standards, management should establish and operate monitoring
activities to monitor the internal control system and evaluate the results.
This includes ongoing monitoring of the design and operating
effectiveness of the internal control system as part of the normal course
of operations. Further, management should remediate identified internal
control deficiencies on a timely basis. To this end, RBOPS’s plans for
ongoing monitoring of the facilities include periodic reviews of program
operations and controls to obtain reasonable assurance that controls are
in place and functioning in a manner that sufficiently addresses identified
risks. According to RBOPS officials, plans also include tracking the
relevant facilities’ progress in addressing the identified enhancements
from RBOPS’s phase two reviews. RBOPS plans to conduct ongoing
follow-up on and periodic reporting of facilities’ progress in incorporating
the enhancements as part of its phase three reviews.
Main Street Lending As of June 30, 2021, the Main Street facilities were the only facilities that
Program Has Experienced had experienced losses. According to Federal Reserve officials, this is
because a small number of Main Street borrowers experienced a credit
and Continues to Expect
event, such as a bankruptcy. These credit events have resulted in a
Some Losses, but These recognized loss of about $4 million to the Main Street facilities.
Are Offset by CARES Act
Funds Regulations governing the Federal Reserve’s emergency lending
authority require that loans be secured to the satisfaction of the Federal
Reserve Bank making the loan. Losses in the Main Street Lending
Program are covered first by fees charged and interest earned in the
facility, and then by about $16.6 billion in funds that Treasury made
available under the CARES Act to support the Main Street facilities. In its
periodic reports to Congress, the Federal Reserve continues to state that
losses in the Main Street Lending Program will not result in any losses to
the Federal Reserve.
In addition to current losses, the Federal Reserve has also recorded a
loss allowance in anticipation of future losses from the Main Street
Lending Program. As of June 30, 2021, the Federal Reserve had
recorded a loan loss allowance of about $2.5 billion, which comprises
$1.27 billion in specific loss allowance and $1.26 billion in general loss
26GAO-14-704G.
Page 15 GAO-22-104640 Federal Reserve Facilities
Specific loss allowance. To generate the allowance, according to Federal Reserve officials (see sidebar).
specific loan loss allowance, the Federal Borrowers under the Main Street Lending Program are required to report
Reserve Bank of Boston evaluates loans with
an outstanding balance of $15 million or
certain financial data to their lender quarterly, and additional information
greater that fail to meet certain criteria related annually. 27 The Federal Reserve also analyzes all of the CARES Act
to loan performance or credit rating to
determine if it is likely the borrower will not
facilities quarterly to determine if it is necessary to set aside an allowance
repay all of the principal and interest. for potential loan losses in accordance with generally accepted
If it is determined that a loss is likely, the Main accounting principles. 28 As of March 31, 2021, only the Main Street
Street facilities recognize a specific loan loss Lending Program anticipated probable losses.
allowance for that loan. As of June 30, 2021,
according to Federal Reserve officials, the total
amount of the specific loan loss allowance for
all such loans amounted to $1.27 billion.
General loss allowance. A loan may be
subject to the general allowance either
because the borrower is expected to repay all
of the principal and interest, or because the
balance of the loan is below the threshold for
the specific loan loss allowance. The general
loan loss allowance takes into account the
probability that some portion of a pool of loans
will default and the losses that would be
incurred if loans were to default, applied to the
outstanding principal of the pool of loans. As of
June 30, 2021, according to Federal Reserve
officials, the general loan loss allowance
amounted to $1.26 billion.
Source: Board of Governors of the Federal Reserve System
(Federal Reserve) documents. | GAO-22-104640
The Federal Reserve implemented emergency lending facilities to
Corporate Credit mitigate disruptions in corporate credit markets as a result of the COVID-
Market Risks Have 19 pandemic. 29 We found that since mid-2020, credit risks in short-term
corporate credit markets have declined and remain low relative to
Remained Low since prepandemic levels, corporate bond issuances have increased, and
Mid-2020, but
Longer-Term
Uncertainties Remain
27For instance, borrowers are required to report total assets, total liabilities, and total
revenue both annually and quarterly.
28The loan loss allowance does not represent incurred losses in the program—instead, it
is an estimate of probable losses.
29The Federal Reserve established the following facilities to primarily support large
businesses: Primary Dealer Credit Facility; Money Market Mutual Fund Liquidity Facility;
Commercial Paper Funding Facility; Secondary Market Corporate Credit Facility; Term
Asset-Backed Securities Loan Facility; and Primary Market Corporate Credit Facility.
Page 16 GAO-22-104640 Federal Reserve Facilities
outstanding bond balances have grown. 30 In addition, sectors hard hit by
the pandemic have experienced lower bankruptcy filings in 2021 relative
to 2020, but vulnerabilities remain in the corporate bond market. Although
it is difficult to completely isolate the impact of the corporate credit
facilities, they likely have contributed to restoring confidence among
market participants through the announcement of the facilities, purchases
of securities, and provision of a funding backstop. 31
Short-Term Corporate Short-term market functioning—targeted by the Commercial Paper
Credit Risks Have Funding Facility, the Money Market Mutual Fund Liquidity Facility, and the
Primary Dealer Credit Facility—allow companies to borrow to meet their
Remained Low since Mid-
immediate costs, such as making payroll, without the need to keep cash
2020, but Outstanding on hand at any given moment. 32 Since our prior report in December 2020,
Balances Are Lower Than credit risks in short-term corporate credit markets have continued to
Prepandemic Levels remain low. Specifically, market metrics, including widely used measures
of the level of stress in the banking system, suggest that short-term credit
risks have decreased to prepandemic levels since June 2020. For
example, the forward rate agreement-overnight indexed swap (FRA-OIS)
spread and the TED spread—which provide a snapshot of how the
market views short-term credit conditions—suggest that credit risks have
30This report analyzed data that were available through July 2021. Our prior Federal
Reserve facilities report, which was issued in December 2020, analyzed data that were
available through September 2020. See GAO-21-180.
31See, for example, Nina Boyarchenko, Anna Kovner, and Or Shachar, It’s What You Say
and What You Buy: A Holistic Evaluation of the Corporate Credit Facilities, Federal
Reserve Bank of New York Staff Reports, no. 935 (July 2020). See also Simon Gilchrist et
al., “The Fed Takes on Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF,”
working paper no. 27809 (National Bureau of Economic Research, September 2020),
accessed August 4, 2021, http://www.nber.org/papers/w27809. It is difficult to isolate the
impact of the facilities because the Federal Reserve also took a number of other actions in
response to market disruptions resulting from the COVID-19 pandemic, which included
regulatory and monetary policy actions that supported the flow of credit to households,
businesses, and the U.S. economy. See GAO-21-180.
32Short-term market functioning includes credit risks, liquidity risks, and market
intermediation.
Page 17 GAO-22-104640 Federal Reserve Facilities
eased because the narrower the spreads, the lower the stress in financial
markets (see fig. 2). 33
Figure 2: Current and Forward Measures of Spreads on Short-Term Credit, January 2019–July 2021
Note: The FRA-OIS spread is the difference between a 3-month forward rate agreement (FRA) and a
3-month overnight indexed swap (OIS). The TED spread is the difference between the 3-month
London Interbank Offered Rate (LIBOR) based on U.S. dollars and the 3-month Treasury bill. A basis
point is 1/100th of a percentage point.
33Spreads are the difference in yields between a security (such as a commercial paper)
and a safer asset (such as a Treasury security) with similar timing of interest and principal
payments. Spreads measure the premium investors require to hold assets that are
relatively riskier than safe assets. The FRA-OIS spread is the difference between a 3-
month forward rate agreement (FRA) and a 3-month overnight indexed swap (OIS). The
TED spread is the difference between the 3-month London Interbank Offered Rate
(LIBOR) based on U.S. dollars and the 3-month Treasury bill.
Page 18 GAO-22-104640 Federal Reserve Facilities
However, trends of issuances and outstanding balances among
Commercial Paper
commercial paper and money market funds have not recovered to
Commercial paper is short-term debt issued
primarily by corporations. The commercial
prepandemic levels (see sidebar for an explanation of commercial paper
paper market is an important source of short- and prime money market mutual funds). 34 For example, issuances and
term credit for a range of financial and
nonfinancial businesses that may rely on it to
outstanding balances of commercial paper have decreased and are still
make payroll or for other short-term funding lower than prepandemic levels (see fig. 3). Outstanding balances of prime
needs. Municipalities can also issue money market funds have also decreased and were below prepandemic
commercial paper for short-term funding
needs, and asset-backed commercial paper levels as of June 2021.
finances certain consumer loans, such as
auto loans. Because commercial paper
involves short maturities, many businesses Figure 3: Year-Over-Year Commercial Paper Outstanding for Large Nonfinancial
must frequently issue new commercial paper Businesses, January 2019–July 2021
to pay off expiring commercial paper.
Prime Money Market Funds
A money market fund is a type of mutual fund
that is required by law to invest in low-risk
securities. Money market funds act as
intermediaries between investors seeking
highly liquid, safe investments and corporate
and government entities that issue short-term
debt to fund operations. Prime money market
funds, one category of money market funds,
primarily invest in short-term corporate and
bank debt such as commercial paper, though
they may also hold U.S. government-backed
securities such as U.S. Treasury securities.
Source: GAO. | GAO-22-104640
Note: The data in this figure are for domestic nonfinancial commercial paper.
The reduced issuances and outstanding balances in the short-term credit
markets may indicate that businesses have shifted away from short-term
financing in favor of longer-term financing in the corporate bond market.
In particular, debt has grown in the corporate bond market as companies
increased their borrowing and refinanced their debt at low interest rates
34See app. II for information on the commercial paper market, prime money market, and
repurchase agreement market.
Page 19 GAO-22-104640 Federal Reserve Facilities
and at longer maturities (as discussed later in this report). 35 This trend
could adversely affect the sustainability of short-term corporate credit
markets over time if the market becomes less liquid because a less liquid
market is likely to be more volatile.
Corporate Bond Market The corporate bond market—which allows companies to issue debt
Debt Remains Elevated, instruments to raise money to support continuing operations, including
employment and other activities such as investment and growth plans—
but Bankruptcy Filings
was targeted by the Primary Market Corporate Credit Facility and the
Have Declined from 2020 Secondary Market Corporate Credit Facility.
Levels
Spreads on Corporate Bonds Since our prior report in December 2020, credit risks in the corporate
bond market have remained low (see sidebar for an explanation of
Corporate Bonds corporate bonds). Specifically, spreads on both investment grade and
In the corporate bond market, large non-investment-grade corporate bonds have remained low since the
companies issue and sell bonds to investors
in exchange for cash. Bond investors function second half of 2020 (see fig. 4). 36 The facilities likely lowered corporate
as lenders that generally receive payments of credit spreads through various means. Specifically, the announcements
principal plus interest over a period of time.
The borrowing cost and liquidity for
of the facilities may have improved confidence in the corporate bond
companies that issue corporate bonds are market, thereby reducing the credit risk and the premium investors
largely determined by credit ratings, which are require for taking on that risk. Also, the facilities’ presence served as a
assigned by credit rating agencies and are
intended to indicate the companies’ backstop and may have increased dealers’ willingness to trade the
investment risks and payment capabilities. eligible securities. Lastly, the facilities’ transactions purchasing eligible
Bonds rated above a certain threshold are
called investment grade bonds. debt securities may have helped increase liquidity in the markets, thereby
Source: GAO. | GAO-22-104640 benefitting market participants.
35See app. II for more information on short-term funding and credit risk, including spreads
on the 90-day commercial paper market and outstanding balances of prime money market
funds.
36The Primary Market Corporate Credit Facility and the Secondary Market Corporate
Credit Facility expired on December 31, 2020. The Primary Market Corporate Credit
Facility did not conduct any transactions.
Page 20 GAO-22-104640 Federal Reserve Facilities
Figure 4: Spreads on Corporate Bonds, January 2019–July 2021
Note: Data represent option-adjusted spreads on dollar-denominated investment-grade and non-
investment-grade bonds. A basis point is 1/100th of a percentage point.
On June 2, 2021, the Federal Reserve Bank of New York announced that
the Secondary Market Corporate Credit Facility would begin sales of its
holdings of corporate bond exchange-traded funds on June 7, 2021. On
July 8, 2021, the Reserve Bank announced that the facility also would
begin sales of its corporate bond holdings on July 12, 2021. The
announcements had little impact on the corporate bond market, possibly
because the amount of the facility’s purchases was a small portion of the
overall volume of the corporate bond market. 37 As of September 1, 2021,
all of the facility’s holdings in exchange-traded funds and corporate bonds
had either matured or been sold.
Corporate Bond Issuances and Bond issuances are increasing and remain higher than prepandemic
Outstanding Debt levels, especially issuances of non-investment-grade bonds, which may
also reflect that businesses have shifted from short-term debt in favor of
long-term debt, as previously discussed (see fig. 5).
37As of June 30, 2021, the outstanding asset purchases under the corporate credit
facilities were $10.2 billion, while the outstanding balances in the corporate bond market
were $6.6 trillion.
Page 21 GAO-22-104640 Federal Reserve Facilities
Figure 5: Annual Cumulative Issuances of Corporate Bonds, January 2019–July
2021
Note: The issuances in this figure are for investment grade and non-investment-grade bonds. The
figure excludes all issuances with maturities of 1 year or less and certificates of deposit.
The large increase in the issuances of corporate bonds has occurred as
companies have built large cash positions to take advantage of low
interest rates and longer maturities, a situation that has been especially
advantageous for companies with lower-quality ratings. Issuances of both
investment grade and non-investment-grade bonds have increased as
these securities have been issued at lower interest rates, meaning it has
been cheaper for companies to borrow. 38
Corporate bonds outstanding remain elevated partly because of the
record issuances, and bankruptcy filings were higher in 2020 since the
onset of the pandemic compared to 2019 levels, but generally were lower
in 2021 compared to 2020 levels, especially in the service sector and
other sectors hard-hit by the pandemic (see figs. 6 and 7). Sectors with
38In addition, the number of “rising stars” (companies promoted to investment grade from
non-investment grade) outpacing the number of “fallen angels” (companies downgraded
from investment grade to non-investment grade) may have also increased issuances.
App. II provides information on issuances of asset-backed securities—a long-term debt
instrument intended to support provision of credit to households and businesses.
Page 22 GAO-22-104640 Federal Reserve Facilities
the most bankruptcies as of May 2021 were consumer discretionary
(including restaurants), energy (including exploration and production), and
real estate (including real estate services). Economic activity in these
sectors was adversely affected by the repercussions of policies to
mitigate the pandemic. The bankruptcy filings reflect defaults by
companies that probably could not refinance their corporate bond debt as
their revenues declined or the assets they own fell in value. The high level
of outstanding debt leaves businesses vulnerable to distress if it becomes
difficult to make repayments on their debt.
Figure 6: Nonfinancial Corporate Bonds Outstanding, First Quarter 2019–Second
Quarter 2021
Page 23 GAO-22-104640 Federal Reserve Facilities
Figure 7: Year-Over-Year Corporate Bankruptcy Filings with Liabilities Exceeding
$50 Million, January 2019–July 2021
Note: Bloomberg’s bankruptcy coverage is limited to public companies or private companies with
liabilities at the time of the bankruptcy filing greater than $50 million. The filings are for Chapter 7 or
Chapter 11 bankruptcies. Data were accessed on August 11, 2021.
Secondary Market The Federal Reserve established the Secondary Market Corporate Credit
Corporate Credit Facility Facility to support the availability of credit to large employers during the
COVID-19 pandemic. The facility purchased a percentage of average
Held a Diverse Mix of
daily volumes in the markets for corporate bonds, exchange-traded funds,
Corporate Bonds That or both based on an assessment of credit markets. Specifically, according
Tracked a Broad Market to Federal Reserve documentation, the Federal Reserve Bank of New
Index York assessed indicators of the health of credit markets daily to
determine how much in corporate bonds and exchange-traded funds the
facility should purchase. 39 For exchange-traded funds, the Federal
Reserve Bank of New York also used indicators specific to that market,
such as premium or discount to net asset value—that is, the difference
between the net value of the assets in the fund and the assets’ current
market price. The facility purchased a lower percentage if the indicators
showed that credit markets were improving, and purchased a higher
39Indicators used by the Federal Reserve Bank of New York, but were not limited to,
transaction cost estimates, bid-ask spreads, credit curve shape, credit curve shape,
spread levels and volatility, trading volumes, and dealer inventories.
Page 24 GAO-22-104640 Federal Reserve Facilities
percentage if the indicators showed the markets were deteriorating
compared to prepandemic levels.
When the facility began purchasing assets on May 12, 2020, it purchased
exchange-traded funds that provided broad exposure to the U.S.
corporate bond market. According to Federal Reserve officials, it did so to
achieve its goals as quickly as possible. On June 16, 2020, the facility
began purchasing individual corporate bonds, and it gradually tapered its
purchases of exchange-traded funds to zero.
According to Federal Reserve documentation, for its individual corporate
bond purchases, the facility did not choose which specific bonds to
purchase. Instead, the Federal Reserve Bank of New York created a
Broad Market Index—which tracked the economic sectors of all corporate
bonds eligible for purchase by the facility—and purchased eligible bonds
in the secondary market in proportions that roughly mirrored the makeup
of the index. The Broad Market Index was recalculated every 4 to 5
weeks, and bond purchases by the facility were designed so that the
weight of each economic sector in the facility’s portfolio tracked as closely
as possible to the index’s economic sector weights (see fig. 8).
Page 25 GAO-22-104640 Federal Reserve Facilities
Figure 8: The Secondary Market Corporate Credit Facility’s Methodology for Purchasing Corporate Bonds
Note: Not all corporate bonds were eligible for purchase by the facility, including bonds issued by
companies not organized or created in the United States; bonds issued by banks, credit unions, or
other institutions insured under the Federal Deposit Insurance Act; and bonds with a remaining
maturity of more than 5 years.
In addition, the facilities imposed maximum purchase limits on each
company’s bonds. The combined holdings of the Primary Market
Corporate Credit Facility and the Secondary Market Corporate Credit
Facility could not exceed the lesser of
• 10 percent of the issuer’s maximum outstanding bonds on any day
from March 22, 2019, to March 22, 2020, or
• $11.25 billion, which is 1.5 percent of the combined potential $750
billion size of the Primary Market Corporate Credit Facility and
Secondary Market Corporate Credit Facility collectively.
Over time, as markets improved, the Federal Reserve Bank of New York
reduced the facility’s purchases. Of the $14.3 billion in asset purchases
Page 26 GAO-22-104640 Federal Reserve Facilities
made by the facility, over $10 billion were made over a 2-month period,
from mid-May to mid-July 2020.
As of December 31, 2020, when the Secondary Market Corporate Credit
Facility ceased purchasing assets, it held exchange-traded funds with a
market value of about $8.8 billion and corporate bonds with a par value of
about $5.2 billion. 40 As previously mentioned, as of September 1, 2021,
all of the facility’s holdings in exchange-traded funds and corporate bonds
had either matured or been sold.
Our review of Federal Reserve Bank of New York documents and data
showed that Secondary Market Corporate Credit Facility corporate bond
purchases represented a broad, diversified market index of U.S.
corporate bonds (see fig. 9).
Figure 9: Corporate Bonds Purchased by the Secondary Market Corporate Credit
Facility, by Sector, as of May 31, 2021
Note: Positions reflect bonds purchased through December 31, 2020, and redemptions, exchanges,
or maturities for which proceeds were received on or prior to May 31, 2021. The Secondary Market
Corporate Credit Facility began selling its corporate bond holdings on July 12, 2021.
40Par value, or face value, generally indicates the principal value of the bond which is paid
to the holder at maturity. Market value is the amount that a security can be sold for to
another willing buyer.
Page 27 GAO-22-104640 Federal Reserve Facilities
a
Noncyclical consumer goods are those associated with food production or other goods for which
consumer demand continues regardless of the overall economy.
b
Par value, or face value, generally indicates the principal value of the bond which is paid to the
holder at maturity.
The Federal Reserve established the Municipal Liquidity Facility to
Municipal Credit specifically address deteriorating conditions in municipal credit markets.
Market Outlook We found that since mid-2020, spreads on municipal bonds have
decreased to prepandemic levels and issuances have increased
Remains Uncertain, slightly. 41 Although it is difficult to isolate the impact of the municipal credit
and Participants facility, it likely has contributed to restoring confidence among market
participants through the announcement of intent to provide credit and
Found the Municipal through the provision of a backstop in the municipal credit markets. 42
Liquidity Facility
Beneficial
Municipal Credit Since our last report in December 2020, spreads on municipal bonds
Borrowing Costs Have have decreased considerably, reaching prepandemic levels in January
2021 and falling further since then (see fig. 10). 43 This trend suggests that
Decreased to
perceived risk among municipal issuers has continued to fall, and that
Prepandemic Levels, but state and local governments’ access to credit has continued to increase.
Market Outlook Is Rates for variable rate demand notes—an asset in municipal money
Uncertain market funds—have also decreased, but their outstanding balances have
declined compared to prepandemic levels. See appendix II for more
information on variable rate demand notes.
41This report analyzed data that were available through July 2021. Our prior Federal
Reserve facilities report, which was issued in December 2020, analyzed data that were
available through September 2020. See GAO-21-180.
42See, for example, Nicholas Fritsch, John Bagley, and Shawn Nee, “Municipal Markets
and the Municipal Liquidity Facility,” Federal Reserve Bank of Cleveland, working paper
no. 21-07 (March 2021), accessed August 4, 2021, https://doi.org/10.26509/frbc-wp-
202107.
43Municipal bonds can be classified as either general obligation bonds or revenue bonds.
General obligation bonds are backed by general revenues of the issuing municipality,
while revenue bonds are repaid from the revenue generated by the specific project the
bonds paid for, such as income from a toll road.
Page 28 GAO-22-104640 Federal Reserve Facilities
Figure 10: Spreads on Municipal Bonds, January 2019–July 2021
Note: Spreads on municipal bonds are calculated relative to interest rates on Treasury 10-year yield
based on the Bloomberg-Barclays Municipal Bond Index and are measured in basis points or 1/100th
of a percentage point.
Municipal bond issuances have increased to slightly higher than
prepandemic levels (see fig. 11). 44 For example, issuances in 2021 have
been slightly higher than 2020 levels, which were higher than
prepandemic levels. (See app. II for information on state and local
municipal bonds outstanding.) The increase in issuances, combined with
the reduced spreads on municipal bonds, suggests credit risk concerns
about issuers’ ability to service their bonds have eased. However, the
longer-term outlook for the municipal bond market is uncertain, partly
because of concerns that the slowing rate of vaccinations and the spread
of new virus variants could result in the reinstatement of pandemic-related
restrictions. Such restrictions could adversely affect local economic
conditions, raising concerns about the ability of municipal bond issuers to
service their debt. Further, the potential for additional federal support to
help state and local governments manage loss of tax revenues and
increased expenditures remains unknown.
44The Municipal Liquidity Facility ceased purchasing eligible notes on December 31, 2020,
and as of September 1, 2021, the outstanding amount of assets was $4.4 billion.
Page 29 GAO-22-104640 Federal Reserve Facilities
Figure 11: Annual Cumulative Issuances of Municipal Bonds, January 2019–July
2021
Note: The issuances in this figure include private placements—transactions where a broker-dealer
sells the entire municipal bond placement to one of its clients. All issuance figures are based on deals
with a maturity of 13 months or greater. The average final maturity at issuance was 18.2 years, 17.4
years, and 17.3 years in 2019, 2020, and 2021, respectively.
Entities That Explored or Even though the Municipal Liquidity Facility had limited usage, the six
Participated in the state and local entities that used or explored using the facility said it was
beneficial as a backstop to the municipal credit market. 45 Officials from
Municipal Liquidity Facility
these six entities—of which three used the facility and three explored
Found It Beneficial as a using it—told us the facility helped stabilize and restore investor
Municipal Credit Market confidence in the municipal bond market, which made it less costly to
Backstop issue municipal bonds and, in turn, reduced the need for states and
localities to access the facility. Officials from five of the six entities said
the municipal credit market has recovered since the onset of the
pandemic. However, officials from four of the six entities stated that a
backstop would continue to help ensure the functioning of the municipal
bond market.
45We refer to state governments, county governments, and transit authorities as “state
and local entities.”
Page 30 GAO-22-104640 Federal Reserve Facilities
According to officials from the state and local entities that participated or
explored participating in the Municipal Liquidity Facility, they generally did
so to mitigate budget shortfalls caused by the COVID-19 pandemic. For
example, officials from three of the entities said that the pandemic caused
temporary closures of shops, restaurants, and other businesses, reducing
revenues from sales tax, fees, and mass transit fares. In addition, officials
from two states told us that the extension of the 2019 federal tax-filing
deadline from April 15 to July 15, 2020, delayed state-tax revenue
receipts for states that also changed their state-tax filing deadline to
match the federal deadline.
The Municipal Liquidity Facility offered two options for participation:
borrowing directly from the facility (by selling bonds to it) or using the
facility as a backstop when issuing bonds. 46
• In total, the facility conducted four transactions with two entities that
borrowed directly, totaling almost $6.6 billion, with each entity selling
bonds to the facility twice. 47
• The facility served as a backstop for one entity (a county
government). Officials from the county told us they issued notes twice
in the municipal bond market and the notes were purchased by
investors other than the Municipal Liquidity Facility.
We also identified three other state and local entities that explored
participating in the facility but that ultimately did not do so. Specifically, of
the three entities, Federal Reserve officials told us that one county
government and one mass transit entity each filed a notice of intent to
participate in the facility, and the third entity—a state—did not file a notice
of intent.
Officials from the three state and local entities that participated in the
Municipal Liquidity Facility cited various reasons for choosing the facility
over other borrowing options. For example, one entity chose to participate
in the facility because short-term borrowing costs in the municipal bond
market were too high, and the entity rejected private bids to purchase its
bond issuances. Another entity was uncertain of its ability to sell its
bonds, which it needed to do to avoid insolvency, and the facility provided
a guaranteed source of borrowing. Officials from the third entity told us
46When serving as a backstop, the facility agreed to purchase eligible bonds that were not
purchased by other buyers in a competitive sale.
47The two participants that participated in the Municipal Liquidity Facility are the State of
Illinois and the New York Metropolitan Transportation Authority.
Page 31 GAO-22-104640 Federal Reserve Facilities
the facility helped it maintain its investment-grade credit rating. Officials
from one entity also cited as a benefit the ability to prepay debt borrowed
through the facility (which would reduce interest payments). Officials from
two entities also told us that Federal Reserve staff were collaborative and
helpful in facilitating their participation in the facility.
Officials from the three entities that explored but did not participate in the
Municipal Liquidity Facility cited several reasons for choosing other
financing options. 48 Officials from one entity told us they did not
participate because they were able to obtain lower rates in the municipal
bond market. Officials from the other two entities told us their states’ legal
requirements and restrictions made participation in the facility
challenging. For example, officials from a transit agency told us that their
state generally limited loans to a term of 1 year. This was a relatively
short time frame for loan repayment given the pandemic’s uncertainty.
Overall, the six entities that participated or explored participating in the
facility cited three enhancements they believe would have encouraged
greater access and participation in the Municipal Liquidity Facility:
• Lower interest rates. Regulation A requires a facility to charge a
premium interest rate (under normal circumstances) to discourage
borrowing from the facility as economic conditions normalize, but it
also requires the rate to be set at a level that affords liquidity in
unusual and exigent market conditions. 49 Officials from four of the six
entities said the facility’s interest rates discouraged participation.
• Longer term limits. The facility’s term sheet set a bond maturity term
of 3 years. Officials from four of the six entities said the 3-year term
discouraged borrowing. According to two of these entities, that time
frame was not long enough for states and municipalities to be certain
of their ability to repay the debt.
48Officials from the three entities that explored but did not participate in the Municipal
Liquidity Facility said other financing options included borrowing in the municipal bond
market, sale and leaseback of equipment, assistance from local and regional
governments, and creating a consolidated revenue credit.
49Regulation A specifically requires that facilities set interest rates that are at a premium to
the market rate available under normal circumstances; afford liquidity in unusual and
exigent circumstances; and encourage repayment of the credit and discourage use of the
program or facility as the unusual and exigent circumstances that motivated the program
or facility recede and economic conditions normalize.
Page 32 GAO-22-104640 Federal Reserve Facilities
• Expanded participation eligibility. Entities eligible to participate in
the facility included cities and counties that met a population threshold
(at least 250,000 and 500,000 residents, respectively), states, and
multistate entities. Other entities, such as certain mass transit
agencies or certain cities and counties below the population threshold,
could participate, but only by obtaining a designation from their state’s
governor allowing them to do so. 50 Officials from three of the six
entities we spoke with said the population thresholds and the
requirement and associated steps to obtain a governor’s designation
made the facility more difficult to use.
The Federal Reserve took measures to support the flow of credit to small
Small Businesses’ businesses that were vulnerable to large and sustained loss of revenue
Access to Credit Has due to the COVID-19 pandemic. 51 We found that starting from the third
quarter of 2020, small businesses’ access to credit generally improved,
Improved, and the but recovery of small businesses remains slow, especially for businesses
Main Street Loans owned by Asian, Black, or Hispanic people and businesses in the
services sector. 52 According to our generalizable survey, about 88
Were Concentrated in percent of borrowers in the Main Street Lending Program reported that
Certain Sectors the program was “very important” in helping them maintain operations.
According to Federal Reserve Bank of Boston data, borrowers in the Main
Street Lending Program were concentrated in certain economic sectors,
such as the food services and drinking places sector, and Main Street
loans were concentrated in certain metropolitan areas, such as Miami,
Dallas, and Los Angeles. According to our generalizable survey, women-
owned businesses were underrepresented in the Main Street Lending
50The Municipal Liquidity Facility was designed to support lending to U.S. states (including
the District of Columbia), U.S. counties with a population of at least 500,000 residents,
U.S. cities with a population of at least 250,000 residents, and certain multistate entities.
The facility’s terms provided states’ governors flexibilities to designate additional entities
for participation, such as mass transit agencies that issue revenue bonds and certain
smaller cities and counties, for states specified in the facility’s term sheet.
51The Federal Reserve established the following facilities to support primarily small for-
profit businesses: the Paycheck Protection Program Liquidity Facility and the Main Street
New Loan Facility, Main Street Priority Loan Facility, and Main Street Expanded Loan
Facility. As of September 1, 2021, the total outstanding amount of all advances under the
Paycheck Protection Program Liquidity Facility was $74.4 billion. The Main Street Lending
facilities ceased purchasing participations in eligible loans on January 8, 2021, and the
total value of the assets held by the facility was $13.5 billion as of September 1, 2021.
This amount is net of the $2.5 billion allowance for loan losses previously discussed.
52This report analyzed data that were available through July 2021. Our prior Federal
Reserve facilities report, which was issued in December 2020, analyzed data that were
available through September 2020. See GAO-21-180.
Page 33 GAO-22-104640 Federal Reserve Facilities
Program, compared to their representation among U.S. businesses as a
whole.
Small Businesses’ Access Based on recent survey results, business owners’ views of lending
to Credit Generally Started conditions for small businesses suggest that credit terms generally
started to improve in the third quarter of 2020. For example, according to
to Improve in the Third
surveys of the small and independent business owner membership of the
Quarter of 2020, but National Federation of Independent Business, small businesses’ views on
Recovery Remains Slow credit conditions started to improve in outlook in the third quarter of 2020.
However, the survey results also indicated that the views of small
business owners regarding their borrowing needs have generally
remained the same (see fig. 12).
Figure 12: Small Businesses’ Views on Credit Conditions, January 2019–July 2021
Note: Data are based on quarterly surveys of a sample of the membership of the National Federation
of Independent Business. Borrowing needs satisfied reflects the net percentage (“satisfied” minus
“not satisfied”) of borrowers in the last 3 months. Expected credit conditions reflects the net
percentage (“easier” minus “harder”) of borrowers during the next 3 months. The data are copyright of
the National Federation of Independent Business (NFIB) Research Center. © NFIB Research Center.
ISBS#0940791-24-2, NFIB Small Business Economic Trends, William C. Dunkelberg and Holly
Wade, July 2021. The Main Street for-profit lending facilities consist of the Main Street New Loan
Facility, the Main Street Expanded Loan Facility, and the Main Street Priority Loan Facility (which was
announced on April 30, 2020).
Page 34 GAO-22-104640 Federal Reserve Facilities
According to the Federal Reserve’s Senior Loan Officer Opinion Survey,
survey responses on banks’ lending conditions for small business loans
suggest that credit terms have continued to improve since the third
quarter of 2020. Specifically, survey responses reflect that banks’
underwriting standards have loosened. Underwriting standards on small
business loans measure the selectivity of lenders in determining to which
small business borrowers they should extend credit. Changes in these
underwriting standards over time can provide a general indication of
changes in credit conditions facing small business borrowers.
Underwriting standards tighten as perceived economic risk increases—
that is, lenders focus on high-quality borrowers as the economy weakens
and loosen as perceived economic risk falls.
For example, based on responses to the Senior Loan Officer Opinion
Survey, banks have continued to loosen their credit standards and terms
on commercial and industrial loans to small businesses since the third
quarter of 2020 (see fig. 13). 53 Data from the survey also indicated that
banks have lowered spreads of loan rates over their costs of funds.
Decreased loan spreads indicate that banks are instituting a smaller
difference between the interest rates they charge on loans and the
interest rate paid to depositors on financial products, such as savings
accounts. This generally indicates perceived lower risk, which in turn
makes credit more available for small businesses. See appendix II for
information on small business loans outstanding.
53The survey reporting panel consists of up to 80 large domestically chartered commercial
banks and up to 24 large U.S. branches and agencies of foreign banks, and the
respondent bank’s senior loan officers complete the survey. In the survey, small
businesses are defined as those with annual sales of less than $50 million. Based on the
timing of survey completion, each quarter of the survey generally corresponds to the
previous quarter. The latest survey covers the previous 3 months, which generally
corresponds to the second quarter of 2021. Respondent banks received the survey on
June 21, 2021, and responses were due by July 1, 2021.
Page 35 GAO-22-104640 Federal Reserve Facilities
Figure 13: Banks’ Lending Conditions for Small Business Loans, First Quarter
2019–Third Quarter 2021
Note: We report results from the Federal Reserve’s Senior Loan Officer Opinion Survey on credit
standards and loan spreads on commercial and industrial loans. A positive number for credit
standards indicates that more banks are tightening rather than loosening standards. Similarly, a
positive number for loan spreads indicates that more banks are increasing rather than decreasing
loan spreads. Based on the timing of survey completion, each quarter of the survey generally
corresponds to the previous quarter. For more information, see
https://www.federalreserve.gov/data/sloos/sloos-202007.htm, accessed August 2, 2021. The Main
Street for-profit lending facilities consist of the Main Street New Loan Facility and the Main Street
Expanded Loan Facility (which were announced on April 9, 2020), and the Main Street Priority Loan
Facility (which was announced on April 30, 2020).
However, according to a 2020 small business credit survey by the
Federal Reserve Banks, recovery for small businesses remains slow,
especially for businesses owned by minorities. Among all businesses,
about 80 percent reported experiencing financial challenges, up from
Page 36 GAO-22-104640 Federal Reserve Facilities
about 66 percent in 2019. 54 Minority business owners reported
experiencing continued financial challenges. Specifically, about 92
percent of Black-owned firms reported experiencing financial challenges
in 2020 (up from 85 percent in 2019), followed by about 89 percent of
Asian-owned firms (up from 70 percent in 2019) and about 85 percent of
Hispanic-owned firms (up from 78 percent in 2019). Additionally, firms
owned by people of color were more likely than White-owned firms to
report that they reduced their operations in response to the pandemic.
Also, Asian-owned businesses were more likely than others to have
temporarily closed.
Small businesses in the services sector were also affected by the COVID-
19 pandemic. According to an analysis by the Federal Reserve Bank of
New York using data from the tracking tool Homebase, about one-third of
small businesses in the services sector that were active before the
pandemic remained closed as of February 2021, with most of these
businesses having been inactive for 20 weeks or longer. 55 As of February
2021, these closures had not been offset by the entry of new businesses.
Main Street Lending According to our generalizable survey of Main Street borrowers, about 50
Program Generally Helped percent of loans made through the program went to small businesses with
between 11 and 99 employees. 56 Additionally, about 88 percent of the
Small For-Profit
borrowers reported that Main Street loans were “very important” in
Businesses Maintain
Operations
54Federal Reserve Banks of Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City,
Minneapolis, New York, Philadelphia, Richmond, St. Louis, San Francisco, Small
Business Credit Survey: 2021 Report on Employer Firms (2021). This survey was
conducted in September and October 2020, with 9,693 responses from small employer
businesses with fewer than 500 full- or part-time employees in the 50 states and the
District of Columbia and with 4,531 responses from nonemployer firms. This survey used
a nonprobability convenience sampling method to gather data, and as such the results are
not generalizable to the population of U.S. small businesses. While the agency post-
weighted the data to known Census population data, the survey results suffer from
selection bias to an unknown extent.
55Homebase is a scheduling and tracking tool used by around 100,000 businesses, mostly
small firms, in the leisure and hospitality and retail industries.
56In our survey, 35 percent of respondents said their company had 11 to 49 employees
(95 percent confidence interval: 31 to 40 percent). A further 16 percent of respondents
said their company had 50 to 99 employees (95 percent confidence level: 12 to 21
percent).
Page 37 GAO-22-104640 Federal Reserve Facilities
helping them maintain business operations. 57 See appendix III for
complete survey results. 58
According to Federal Reserve data, from July 6, 2020, to January 8,
2021, when the Main Street Lending Program was operational, the Main
Street facilities purchased a participation in 1,830 loans, with almost all
loans supporting for-profit businesses. 59 The Main Street Lending
Program did not lend directly to borrowers; it purchased a 95 percent
participation in eligible loans, and the issuing lender retained the other 5
percent. Because one Main Street loan could support more than one
business, a total of 2,482 businesses participated in the program.
Almost two-thirds of Main Street loans were made after November 15,
2020, in the last 2 months of the program. According to Federal Reserve
officials, the increased activity in the Main Street Lending Program was
largely due to the Treasury Secretary’s announcement in mid-November
2020 that the program would cease purchasing loan participations by
December 31, 2020. 60
The Main Street Lending Program purchased about $16.6 billion in loan
participations, and the average Main Street loan was about $9.5 million.
In addition to the Main Street Lending Program, small businesses had
access to other federal aid programs, such as the Paycheck Protection
Program. For comparison, as of May 31, 2021, the Paycheck Protection
Program had authorized almost $800 billion in loans, and the average
Paycheck Protection Program loan was about $68,000. However,
Paycheck Protection Program loans could be fully forgiven and Main
Street loans could not, which likely made the Paycheck Protection
Program more appealing.
57The 95 percent confidence interval for this estimate ranges from 84 to 92 percent.
58We surveyed contacts for 636 loans made under the Main Street Lending Program and
received 266 responses, for a response rate of 42 percent. We refer to each of these
contacts as a “borrower,” although one borrower may have borrowed money on behalf of
multiple businesses.
59Of the 1,830 loans made through the Main Street Lending Program, 15 loans supported
nonprofit organizations.
60The Consolidated Appropriations Act, 2021 extended the Main Street facilities to
January 8, 2021.
Page 38 GAO-22-104640 Federal Reserve Facilities
Of the 1,830 Main Street loans, about 55 percent were for less than $5
million, and 15 percent were for less than $1 million (see fig. 14).
Figure 14: Loans Made Through the Main Street Lending Program, by Loan Size
The Federal Reserve lowered the threshold for a Main Street loan from
$250,000 to $100,000 on October 31, 2020, and it waived transaction
fees on loans under $250,000, but these changes did not result in a
notable increase in loans to small businesses. 61 In a press release, the
Federal Reserve stated it had made these adjustments to encourage
participation by smaller businesses. However, according to Federal
Reserve data, the percentage of loans made before and after November
1, 2020, for less than $1 million (15.4 percent and 14.9 percent,
respectively) did not change significantly. Over the life of the program, the
Main Street facilities purchased only 12 loan participations for less than
$250,000. According to Federal Reserve officials, there may have been a
61The Federal Reserve originally established the minimum loan threshold at $1 million,
and then lowered it to $500,000 in April 2020 and to $250,000 in June 2020. However,
these reductions took place before the Main Street facilities began purchasing loan
participations.
Page 39 GAO-22-104640 Federal Reserve Facilities
couple of reasons the Main Street program made so few loans for less
than $250,000:
• Companies that needed smaller loans may have had their needs met
through the Paycheck Protection Program.
• Main Street loans required a full underwriting process, and lenders
may have been reluctant to invest the time and resources to originate
smaller loans.
Main Street Lending Overall, Main Street loans were concentrated in certain economic sectors,
Program Was in terms of total dollars loaned, according to Federal Reserve Bank of
Boston data. The five North American Industry Classification System
Concentrated in Certain
(NAICS) codes with the greatest loan volume accounted for slightly over
Sectors and Regions 30 percent of total Main Street loan volume, and the 10 codes with the
greatest loan volume accounted for almost half of total Main Street loan
volume. The food services and drinking places sector accounted for the
largest share of the amount of loans made through the program—over
$1.5 billion in loans—followed by the professional, scientific, and technical
services sector and the amusement, gambling, and recreation sector.
However, some economic sectors have historically produced more goods
and services than others. For instance, in 2019, the food services and
drinking places sector produced just under $900 billion in goods and
services. In comparison, the professional, scientific and technical services
sector produced about $2.4 trillion. Sectors varied in the amount of
assistance they received from the Main Street Lending Program relative
to their gross economic output (see table 2).
Table 2: Total Amount Loaned through the Main Street Lending Program and Amount Loaned Relative to Gross Industry
Output, by Economic Sector
Total amount loaned per million dollars of
Economic sectora Total amount loaned ($) 2019 gross industry output ($)
Food services and drinking places 1,579,271,777 1,759
Professional, scientific, and technical services 1,158,558,342 475
Amusement, gambling, and recreation industries 957,977,195 5,712
Real estate 851,694,514 227
Rental and leasing services 776,133,279 2,002
Oil and gas extraction 723,871,678 1,929
Administrative and support services 675,030,167 642
Support activities for mining 624,463,866 6,736
Page 40 GAO-22-104640 Federal Reserve Facilities
Total amount loaned per million dollars of
Economic sectora Total amount loaned ($) 2019 gross industry output ($)
Accommodation 603,157,419 2,042
Construction of buildings 515,647,158 n/ab
Legend: n/a = not applicable
Source: GAO analysis of Federal Reserve Bank of Boston and Bureau of Economic Analysis data. | GAO-22-104640
a
”Economic sector” refers to North American Industry Classification System (NAICS) codes. Gross
industry output is a measure of the goods and services produced by an industry, valued at producers’
prices (the prices received by the industry).
b
Gross industry output figures from the Bureau of Economic Analysis do not have a category that
corresponds precisely to construction of buildings.
Main Street loans also were concentrated in certain metropolitan areas,
as were the banks that provided the loans. The top five metropolitan
areas, by total amount borrowed, accounted for just over 32 percent of
total Main Street loan volume (see fig. 15). These five metropolitan areas
were
• Miami-Fort Lauderdale-Pompano Beach, Florida;
• Dallas-Fort Worth-Arlington, Texas;
• Los Angeles-Long Beach-Anaheim, California;
• New York-Newark-Jersey City, New York-New Jersey-Pennsylvania;
and
• Houston-The Woodlands-Sugar Land, Texas.
Page 41 GAO-22-104640 Federal Reserve Facilities
Figure 15: Total Dollar Amount Loaned through the Main Street Lending Program, by Metropolitan Area
Note: Metropolitan areas represent Core-Based Statistical Areas.
Five banks were responsible for almost 25 percent of total Main Street
loan volume, three of them headquartered in one of the top five
metropolitan areas listed above (Miami, Dallas, and Los Angeles).
Overall, 319 lenders made loans through the Main Street Lending
Page 42 GAO-22-104640 Federal Reserve Facilities
Program. 62 For comparison, as of May 31, 2021, 5,467 lenders had
participated in the Paycheck Protection Program.
According to a Federal Reserve survey of bank senior loan officers
conducted in the second half of August 2020, banks had a variety of
reasons for choosing to not participate in the Main Street Lending
Program. 63 A majority of banks that did not participate stated they were
able to extend credit to potential Main Street borrowers without the
program. Other reasons they stated for not participating in the program
included unattractive key loan terms to the lender and burdensome
registration requirements. According to our survey, for about 40 percent
of Main Street loans, borrowers found it “somewhat difficult” or “very
difficult” to find a lender that offered loans through the Main Street
Lending Program. 64
Women-Owned Women-owned businesses were underrepresented among Main Street
Businesses Were borrowers, compared to representation among U.S. businesses as a
whole, according to our generalizable survey of Main Street borrowers. 65
Underrepresented Among
In contrast, the percentages of minority-owned businesses and veteran-
Main Street Borrowers owned businesses in the Main Street Lending Program were not
statistically different from the percentages of these businesses in the
62Banks were not required to participate in the Main Street Lending Program. The
following institutions were eligible to make loans under the program: U.S. federally insured
depository institutions, U.S. Branches or agencies of foreign banks, U.S. bank holding
companies, U.S. savings and loan holding companies, U.S. intermediate holding
companies of a foreign banking organization, and U.S. subsidiaries of the foregoing.
Eligible lenders retained 5 percent of each eligible loan.
63Eighty-six domestically chartered banks responded to the Federal Reserve survey,
including 33 banks with assets above $50 billion and 53 banks with assets below $50
billion.
64In our survey, 24 percent said it was “somewhat difficult” (95 percent confidence interval:
19 to 28 percent), and 17 percent said it was “very difficult” (95 percent confidence
interval: 12 to 22 percent).
65According to Federal Reserve officials, Federal Reserve staff contacted more than 70
diverse business associations and organizations with strong connections to minority
communities, as well as tribal governments, to ensure they were aware of the Main Street
Lending Program. Federal Reserve staff also gave presentations at webinars sponsored
by outside entities targeted at potential borrowers and lenders, including minority
depository institutions and minority- and women-owned businesses.
Page 43 GAO-22-104640 Federal Reserve Facilities
population as a whole. 66 According to our generalizable survey of Main
Street borrowers, minority-, women-, and veteran-owned businesses
made up about 14.5 percent, 8.5 percent, and 5.3 percent of participants,
respectively (see fig. 16). 67 In comparison, according to the Census
Bureau’s 2019 Annual Business Survey, minority-, women-, and veteran-
owned businesses made up about 18.3 percent, 19.9 percent, and 5.9
percent of all American businesses with paid employees, respectively. 68
Figure 16: Estimated Participation of Business Types in the Main Street Lending
Program, Compared to Their Representation among U.S. Businesses
Note: Women-owned businesses were the only business type whose participation in the Main Street
Lending Program was statistically different from their overall representation among U.S. businesses.
Officials from an organization representing women-owned businesses
told us they may have participated in the Main Street Lending Program at
66Because one lender issued slightly more than 20 percent of Main Street loans, and
therefore may have had a disproportionate influence on the characteristics of borrowers
as a whole, we also analyzed all loans with the exception of loans made by this lender.
According to this analysis, the percentage of minority-owned Main Street borrowers is 9.5
percent. This number is statistically different from the percentage of minority-owned
businesses in the United States as a whole.
67In addition, according to Federal Reserve data, three tribal-owned businesses received
loans through the Main Street program. For complete survey results, see app. III. For the
complete survey methodology, see app. I.
68The Census Bureau’s 2019 Annual Business Survey sampled approximately 300,000
U.S. employer businesses (businesses with paid employees). Businesses sampled are
required to complete the survey. The difference between our survey results and the
results from the 2019 Annual Business Survey were within the margin of error for minority-
owned and veteran-owned businesses.
Page 44 GAO-22-104640 Federal Reserve Facilities
lower rates because some women-owned businesses do not have
established banking relationships, and therefore they may have been less
likely to hear about the program from a banker, among other factors.
We provided a draft of this report to the Federal Reserve and Treasury for
Agency Comments review and comment. The agencies provided technical comments, which
we incorporated as appropriate.
We are sending copies of this report to the appropriate congressional
committees, the Chair of the Board of Governors of the Federal Reserve
System, and the Secretary of the Treasury. This report will also be
available at no charge on our website at http://www.gao.gov.
Should you or your staff have questions concerning this report, please
contact me at (202) 512-8678 or clementsm@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report are listed in
appendix IV.
Michael E. Clements
Director, Financial Markets and Community Investment
Page 45 GAO-22-104640 Federal Reserve Facilities
List of Committees
The Honorable Patrick Leahy
Chairman
The Honorable Richard Shelby
Vice Chairman
Committee on Appropriations
United States Senate
The Honorable Sherrod Brown
Chairman
The Honorable Patrick J. Toomey
Ranking Member
Committee on Banking, Housing, and Urban Affairs
United States Senate
The Honorable Bernie Sanders
Chairman
The Honorable Lindsey Graham
Ranking Member
Committee on the Budget
United States Senate
The Honorable Maria Cantwell
Chair
The Honorable Roger Wicker
Ranking Member
Committee on Commerce, Science, and Transportation
United States Senate
The Honorable Kyrsten Sinema
Chair
The Honorable James Lankford
Ranking Member
Subcommittee on Government Operations and Border Management
Committee on Homeland Security and Governmental Affairs
United States Senate
Page 46 GAO-22-104640 Federal Reserve Facilities
The Honorable Rosa L. DeLauro
Chairwoman
The Honorable Kay Granger
Ranking Member
Committee on Appropriations
House of Representatives
The Honorable John Yarmuth
Chairman
The Honorable Jason Smith
Ranking Member
Committee on the Budget
House of Representatives
The Honorable Maxine Waters
Chairwoman
The Honorable Patrick McHenry
Ranking Member
Committee on Financial Services
House of Representatives
The Honorable Peter A. DeFazio
Chairman
The Honorable Sam Graves
Ranking Member
Committee on Transportation and Infrastructure
House of Representatives
Page 47 GAO-22-104640 Federal Reserve Facilities
Appendix I: Objectives, Scope, and
Appendix I: Objectives, Scope, and
Methodology
Methodology
Our objectives in this report were to examine (1) why the CARES Act
facilities ceased extending credit and purchasing assets by January 8,
2021; (2) the Board of Governors of the Federal Reserve System’s
(Federal Reserve) oversight and monitoring of the CARES Act facilities;
(3) what available evidence suggests regarding the facilities’ effects on
corporate credit and related markets; (4) what available evidence
suggests regarding the facilities’ effects on states and municipalities, and
entities’ experiences in accessing the Municipal Liquidity Facility; and (5)
what available evidence suggests about trends in small businesses’
access to credit, and the characteristics of Main Street Lending Program
participants.
To address the first objective, we reviewed documentation from the
Department of the Treasury and the Federal Reserve, including the
Treasury Secretary’s letter setting out his determination to not extend the
CARES Act facilities beyond December 31, 2020. We also reviewed
Federal Reserve and Treasury documentation related to the rescission of
unused CARES Act funds (as required under the Consolidated
Appropriations Act, 2021). We interviewed Treasury and Federal Reserve
officials to understand the circumstances surrounding the Treasury
Secretary’s determination not to extend the CARES Act facilities and the
process for returning the unused funds.
To address the second objective, we analyzed documentation from the
Federal Reserve’s Division of Reserve Bank Operations and Payment
Systems (RBOPS) and relevant Federal Reserve Banks. This included
their policies and procedures pertaining to the monitoring and controls of
the CARES Act facilities. We reviewed planning documents and
summaries of completed reviews of the facilities, and we interviewed
Federal Reserve officials on RBOPS’s framework and approach for
continual monitoring of the facilities and results of RBOPS’s oversight
reviews to date. We compared agency controls against selected federal
internal control standards, including the principles that management
should establish and operate monitoring activities to monitor the internal
control system and evaluate the results, and that management should
remediate identified internal control deficiencies on a timely basis. 1
Additionally, we reviewed the Federal Reserve’s periodic reports and
1See GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
(Washington, D.C.: September 2014).
Page 48 GAO-22-104640 Federal Reserve Facilities
Appendix I: Objectives, Scope, and
Methodology
financial statements for updates on potential and actual losses incurred
by the Federal Reserve facilities.
To address the third, fourth, and fifth objectives, we analyzed indicators of
credit markets affected by the facilities. We reviewed research from
academics, the Federal Reserve, and industry experts, and analyzed the
most recently available data through July 2021 on indicators of credit
markets affected by the facilities. To identify and select potential
indicators, we reviewed several sources, including prior GAO work,
reports and data from the Federal Reserve Board and Federal Reserve
Banks, and reports and data from private organizations, including
Bloomberg and Securities Industry and Financial Markets Association.
For the third objective, the data on credit market indicators we analyzed
included credit spreads, issuances, and outstanding balances on short-
term and long-term corporate credit from the Federal Reserve, Federal
Reserve Bank of St. Louis’s Federal Reserve Economic Data database,
Bloomberg Terminal, and the Securities Industry and Financial Markets
Association. We also analyzed publicly available transaction data from
the Secondary Market Corporate Credit Facility to determine the
distribution of the facility’s holdings across broad industry sectors, and we
interviewed Federal Reserve officials to clarify the process for purchasing
exchange-traded funds and individual corporate bonds.
For the fourth objective, the data on credit market indicators we analyzed
included credit spreads, issuances, and outstanding balances of
municipal securities from the Federal Reserve, Bloomberg Terminal, and
the Securities Industry and Financial Markets Association.
For the third and fourth objectives, we also documented changes in the
conditions of credit markets and areas targeted by the facilities by
assessing indicators of the price (such as credit spreads) and availability
of credit (such as issuances and outstanding balances of securities).
In addition, we interviewed representatives of the three entities (state and
local governments) that participated in the Municipal Liquidity Facility. We
also interviewed representatives of the three entities that did not
participate in the facility but had explored doing so. 2
2For the entities that explored the Municipal Liquidity Facility, we interviewed entities that
either filed a notice of intent or communicated interest in accessing the facility.
Page 49 GAO-22-104640 Federal Reserve Facilities
Appendix I: Objectives, Scope, and
Methodology
For the fifth objective, the data on credit market indicators we analyzed
included the most recently available survey data on credit market
conditions experienced by small business owners and lenders from the
National Federation of Independent Business and the Federal Reserve
Board and Federal Reserve Banks. This included some analysis from the
Federal Reserve Bank of New York that had been derived from the
Homebase scheduling and tracking tool, which is used by about 100,000
businesses (mostly small firms in the leisure and hospitality and retail
industries) and the Federal Reserve’s Senior Loan Officer Opinion
Survey.
We obtained data from the Federal Reserve Bank of Boston on all 1,830
loans made under the Main Street Lending Program to determine
characteristics of the program’s participants, their geographic dispersion,
the distribution of loan amounts, and their industry sector. We used data
on gross economic output by economic sector from the Bureau of
Economic Analysis to calculate the amount loaned through the Main
Street Lending Program per million dollars of gross economic output. We
also interviewed representatives of five associations that represent
minority and women business owners to obtain their perspectives on the
program.
For all objectives, we reviewed relevant federal laws and regulations,
facilities’ term sheets, and press releases announcing updates to the
facilities’ terms.
Survey of Main Street To determine certain characteristics of Main Street Lending Program
Lending Program borrowers for our fifth objective, we administered a web-based survey to
a representative sample of for-profit Main Street Lending program
Borrowers
borrowers to obtain otherwise unavailable demographic data about them
and learn about their experience with the program. In the survey, we
asked borrowers about the ownership and size of their business, their
satisfaction with the program, and the ease or difficulty of finding a lender.
We administered the survey from May 2021 to July 2021.
To identify the universe of Main Street borrowers, we used data provided
by the Federal Reserve Bank of Boston on February 12, 2021, which
contained information on all 1,830 loans conducted under the program,
and we excluded the 15 loans to nonprofit organizations. We stratified our
sample using the median of the loan size and sorted the loans by
geographic region prior to selecting a systematic random sample within
each stratum.
Page 50 GAO-22-104640 Federal Reserve Facilities
Appendix I: Objectives, Scope, and
Methodology
Our sample size was designed to achieve a stratum-level margin of error
of no greater than plus or minus 5 percentage points for an attribute level
at the 95 percent level of confidence. We assumed a response rate of 50
percent to determine the sample size for each stratum. Our resulting
sample size was 636, and we received 266 survey responses. We
obtained a response rate of 42 percent. We used logistic regression
models on our survey data to look for correlation with the propensity to
respond among available administrative variables. We did not find
anything and used the standard nonresponse weight adjustment for a
stratified random sample.
Because we followed a probability procedure based on random
selections, our sample is only one of a large number of samples that we
might have drawn. Since each sample could have provided different
estimates, we express our confidence in the precision of our particular
sample’s results as a 95 percent confidence interval (for example, plus or
minus 7 percentage points). This is the interval that would contain the
actual population value for 95 percent of the samples we could have
drawn. Confidence intervals are provided with each sample estimate in
the report. All survey results presented in the body of this report are
generalizable to the population of 1,815 for-profit Main Street borrowers,
except where otherwise noted.
Data Reliability We took a number of steps to assess the reliability of the data sources
and indicators of credit markets for businesses and state and local
governments, including reviewing relevant documentation on data
collection methodology and reviewing prior GAO work. We found that,
collectively, the indicators were sufficiently reliable for the purposes of
providing a general sense of how credit markets are performing.
To assess the reliability of Main Street loan data, we reviewed the data
dictionary and interviewed Federal Reserve officials about access to and
definitions of the data. In addition, we performed electronic testing of
certain key data fields. To assess the reliability of data on the national
prevalence of minority-owned, women-owned, and veteran-owned
businesses from the Census Bureau’s American Business Survey, we
reviewed the survey’s methodology. To assess the reliability of gross
economic output data from the Bureau of Economic Analysis, we
reviewed the bureau’s guide to the data. We found the data from all three
sources to be reliable for our purposes.
We conducted this performance audit from November 2020 to October
2021 in accordance with generally accepted government auditing
Page 51 GAO-22-104640 Federal Reserve Facilities
Appendix I: Objectives, Scope, and
Methodology
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
Page 52 GAO-22-104640 Federal Reserve Facilities
Appendix II: Selected Indicators of Credit
Appendix II: Selected Indicators of Credit
Markets for Corporations, State and Local
Markets for Corporations, State and Local
Governments, and Small Businesses
Governments, and Small Businesses
This appendix provides more detail on indicators of credit markets for
large and small businesses and state and local governments supported
by the Board of Governors of the Federal Reserve System (Federal
Reserve) lending facilities. The market indicators include corporate credit
markets for short-term funding (such as triparty repurchase agreements
and commercial paper), credit markets that were primarily for financial
businesses (such as asset-backed securities), other sources of debt
securities of state and local governments (such as variable rate demand
notes), and outstanding balances of debt of state and local governments
and small businesses.
Corporate Credit Markets We provide details below on other indicators of corporate credit markets
for short-term funding and credit markets that supported primarily
financial businesses.
Repurchase agreement market. The Primary Dealer Credit Facility was
established by the Federal Reserve to provide support to primary dealers
to facilitate the availability of credit to businesses and households using
the triparty repurchase agreement market. 1 While a broad array of assets
may be financed in the repurchase agreement market, the most
commonly used instruments include U.S. Treasuries, federal agency
securities, high quality mortgage-backed securities, corporate bonds, and
money market instruments. Triparty repurchase agreements of corporate
securities increased in 2020 and 2021, above the prepandemic levels in
2019 (see fig. 17). When the facility stopped extending credit on March
31, 2021, the total amount of outstanding loans held by the facility was
$25 million.
1Primary dealers are a group of banks and broker-dealers designated by the Federal
Reserve Bank of New York to serve as trading counterparts in the implementation of
monetary policy. A repurchase agreement is a financial transaction in which one party
sells an asset to another party with a promise to repurchase the asset at a prespecified
later date. A reverse repurchase agreement is the same transaction, but from the
perspective of the security buyer. In a triparty repurchase agreement, market clearing
banks facilitate the settlement, unlike bilateral repurchase agreement markets, where the
parties directly exchange money and securities.
Page 53 GAO-22-104640 Federal Reserve Facilities
Appendix II: Selected Indicators of Credit
Markets for Corporations, State and Local
Governments, and Small Businesses
Figure 17: Annual Cumulative Triparty Repurchase Agreements of Corporate
Securities, January 2019–June 2021
Note: The values in this figure are collateral values of Fedwire-eligible and Fedwire non-eligible
triparty repurchase agreements and reverse repurchase agreements of investment grade and non-
investment grade corporate securities. A repurchase agreement is a financial transaction in which
one party sells an asset to another party with a promise to repurchase the asset at a prespecified
later date. A reverse repurchase agreement is the same transaction, but from the perspective of the
security buyer. In a triparty repurchase agreement, market clearing banks facilitate the settlement,
unlike bilateral repurchase agreement markets, where the parties directly exchange money and
securities.
Commercial paper. Since mid-2020, spreads on 90-day commercial
paper have declined to prepandemic levels (see fig. 18). 2 When the
Commercial Paper Funding Facility stopped purchasing assets on March
31, 2021, the facility had not made any purchases of commercial paper in
several months.
2This report analyzed data that were available through July 2021. Our prior Federal
Reserve facilities report, which was issued in December 2020, analyzed data that were
available through September 2020. See GAO, Federal Reserve Lending Programs: Use of
CARES Act-Supported Programs Has Been Limited and Flow of Credit Has Generally
Improved, GAO-21-180 (Washington, D.C.: Dec. 10, 2020).
Page 54 GAO-22-104640 Federal Reserve Facilities
Appendix II: Selected Indicators of Credit
Markets for Corporations, State and Local
Governments, and Small Businesses
Figure 18: Spreads on 90-day Commercial Paper for Large Nonfinancial Businesses, January 2019–July 2021
Note: A rating of AA is for issuers with at least one “1” or “1+” rating, but no ratings other than “1,”
according to the rating agencies Moody’s or Standard & Poor’s. An A2/P2 rating is for issuers with at
least one “2” rating, but no ratings other than “2.” Maturities are 270 days or less. A line is broken if
there are no data for the category on that date. A basis point is 1/100th of a percentage point. The
spread is the difference between the commercial paper rate and the overnight indexed swap of the
same maturity.
Prime money market funds. Prime money market funds experienced
large net outflows—that is, investors withdrew more money overall from
the funds than they added—beginning in April 2020 and as of June 2021
were below prepandemic levels (see fig. 19). When the Money Market
Mutual Fund Liquidity Facility stopped extending credit on March 31,
2021, the total amount of outstanding assets held by the facility was
$202.5 million.
Page 55 GAO-22-104640 Federal Reserve Facilities
Appendix II: Selected Indicators of Credit
Markets for Corporations, State and Local
Governments, and Small Businesses
Figure 19: Year-Over-Year Prime Money Market Funds Outstanding, January 2019–
June 2021
Note: The prime money market funds reported are investment holdings of unsecured commercial
paper. Investment holdings of prime money market funds could include asset-backed commercial
paper, certificates of deposit, and government security repurchase agreements.
Asset-backed securities. In 2020, issuances of asset-backed securities
declined in almost all segments (except for student loans), especially for
credit cards, compared to prepandemic levels. 3 As of July 2021,
issuances were slightly below prepandemic levels (see fig. 20). The Term
Asset-Backed Securities Loan Facility, which supported financial
institutions and also benefited households, ceased extending credit on
3Asset-backed securities are tradable securities backed by pools of assets, such as loans,
leases, or other cash-flow producing assets. The holders of asset-backed securities are
entitled to payments that are distributed by the underlying assets. Common underlying
assets for asset-backed securities include auto loans and leases, credit card loans,
student loans, insurance premiums, commercial mortgages, and small business loans
guaranteed by the Small Business Administration. Well-functioning markets for asset-
backed securities benefit borrowers, who may gain access to funds with more favorable
terms, and lenders, who may better manage their capital and diversify their income
streams.
Page 56 GAO-22-104640 Federal Reserve Facilities
Appendix II: Selected Indicators of Credit
Markets for Corporations, State and Local
Governments, and Small Businesses
December 31, 2020. As of September 1, 2021, the total amount of
outstanding assets held by the facility was $1.5 billion.
Figure 20: Annual Cumulative Issuances of Asset-Backed Securities, January 2019–
July 2021
Note: Total asset-backed securities include autos, collateralized debt obligations and collateralized
loan obligations, credit cards, equipment, student loans, and other securities, such as Small Business
Administration pools and servicing advances.
State and Local We provide details below on additional indicators of municipal credit and
Government Credit outstanding balances of municipal bonds. Municipal bonds are debt
instruments that state and local governments issue to finance
Markets
transportation, housing, hospitals, education, and other diverse projects.
Variable rate demand notes. Variable rate demand notes (VRDN) are
long-term municipal securities that are payable on demand and accrue
interest based on the prevailing money market rate—effectively making
VRDNs short-term duration assets. These notes also are the most
commonly held type of asset in municipal money market funds. The
Securities Industry and Financial Markets Association municipal swap
index of rates—a commonly used benchmark rate for VRDNs—has
stabilized since the market disruptions in March 2020. The Federal
Reserve announced it was adding VRDNs to the list of eligible collateral
for the Money Market Mutual Fund Liquidity Facility on March 23, 2020.
Page 57 GAO-22-104640 Federal Reserve Facilities
Appendix II: Selected Indicators of Credit
Markets for Corporations, State and Local
Governments, and Small Businesses
However, outstanding balances of VRDNs have declined compared to
prepandemic levels.
State and local government bonds. Municipal bonds outstanding have
remained largely unchanged since the onset of the pandemic (see fig.
21).
Figure 21: State and Local Government Bonds Outstanding, First Quarter 2019–
Second Quarter 2021
Note: The bonds outstanding consist mostly of long-term securities—those with maturities of more
than 13 months.
Small Business Credit We provide details below on outstanding balances of loans to small
Markets businesses. Small businesses in particular are generally dependent on
bank lending for credit because they are too small to raise capital in bond
markets directly.
Small business loans. Small business loans outstanding have increased
since the second quarter of 2020 (see fig. 22). This increase may have
been driven in part by Paycheck Protection Program loans. As such,
Page 58 GAO-22-104640 Federal Reserve Facilities
Appendix II: Selected Indicators of Credit
Markets for Corporations, State and Local
Governments, and Small Businesses
outstanding loan balances may be overstated because Paycheck
Protection Program loans could be forgivable.
Figure 22: Small Business Loans Outstanding, First Quarter 2019–First Quarter
2021
Note: The loans shown in this figure include mortgages, depository institution loans, and other loans
and advances.
Page 59 GAO-22-104640 Federal Reserve Facilities
Appendix III: Results of GAO’s Survey of Appendix III: Results of GAO’s Survey of Main
Street Lending Program Borrowers
Main Street Lending Program Borrowers
From May through July 2021, we administered a web-based survey to a
generalizable sample of for-profit borrowers in the Main Street Lending
Program.
As shown in table 3, we received valid responses from 42 percent of our
total sample. All survey results presented in this appendix are
generalizable to for-profit borrowers in the Main Street Lending Program.
We express our confidence in the precision of our estimates as a 95
percent confidence interval. 1 For a more detailed discussion of our survey
methodology, see appendix I.
Table 3: Survey Population, Sample Size, and Percentage of Valid Survey Responses
Population size Sample size Response rate (%)
1,830 636 42
Source: GAO survey of Main Street Lending Program participants. | GAO-22-104640
Table 4: Is your business minority-owned? (A business is minority-owned if it is at least 51 percent owned and controlled by
individuals who identify as members of one of the following groups: Black Americans, Hispanic Americans, Native
Americans, Asian Pacific Americans, and Subcontinent Asian Americans.)
95 percent confidence 95 percent confidence
interval—lower bound interval—upper bound
Responses Estimated percentage (percentage) (percentage)
Yes 14.5 10.5 19.4
No 83.6 78.6 87.8
Don’t know 1.9 0.6 4.3
Source: GAO survey of Main Street Lending Program participants. | GAO-22-104640
Table 5: Is your business women-owned? (A business is women-owned if it is at least 51 percent owned and controlled by
individuals who identify as women.)
95 percent confidence 95 percent confidence
interval—lower bound interval—upper bound
Responses Estimated percentage (percentage) (percentage)
Yes 8.5 5.4 12.5
No 90.5 86.4 93.8
Don’t know 1.0 0.2 3.0
Source: GAO survey of Main Street Lending Program participants. | GAO-22-104640
1Because we followed a probability procedure based on random selections, our sample is
only one of a large number of samples that we might have drawn. Since each could have
provided different estimates, we express our confidence in the precision of our particular
sample’s results as a 95 percent confidence interval. This is the interval that would contain
the actual population value for 95 percent of the samples we could have drawn.
Page 60 GAO-22-104640 Federal Reserve Facilities
Appendix III: Results of GAO’s Survey of Main
Street Lending Program Borrowers
Table 6: Is your business veteran-owned? (A business is veteran-owned if it is at least 51 percent owned and controlled by
one or more veterans.)
95 percent confidence 95 percent confidence
interval—lower bound interval—upper bound
Responses Estimated percentage (percentage) (percentage)
Yes 5.3 2.9 8.7
No 93.3 89.5 96.0
Don’t know 1.4 0.4 3.7
Source: GAO survey of Main Street Lending Program participants. | GAO-22-104640
Table 7: How important was a Main Street loan in helping your business maintain ongoing operations?
95 percent confidence 95 percent confidence
interval—lower bound interval—upper bound
Responses Estimated percentage (percentage) (percentage)
Very important 88.0 83.5 91.7
Somewhat important 11.3 7.8 15.7
Not too important 0.7 0.1 2.5
Not important at all 0.0 0.0 1.1
My business has closed permanently 0.0 0.0 1.1
Don’t know 0.0 0.0 1.1
Source: GAO survey of Main Street Lending Program participants. | GAO-22-104640
Table 8: How would you rate the process of finding a lender that offered Main Street loans?
95 percent confidence 95 percent confidence
interval—lower bound interval—upper bound
Responses Estimated percentage (percentage) (percentage)
Very easy 29.7 25.2 34.2
Somewhat easy 29.0 24.5 33.5
Somewhat difficult 23.6 19.4 27.8
Very difficult 16.5 12.3 21.5
Don’t know 1.2 0.3 3.4
Source: GAO survey of Main Street Lending Program participants. | GAO-22-104640
Page 61 GAO-22-104640 Federal Reserve Facilities
Appendix III: Results of GAO’s Survey of Main
Street Lending Program Borrowers
Table 9: Approximately how many full-time equivalent employees does your business currently have?
95 percent confidence 95 percent confidence
interval—lower bound interval—upper bound
Responses Estimated percentage (percentage) (percentage)
10 or fewer 11.8 8.2 16.3
11–49 35.3 30.7 40.0
50–99 16.1 11.9 21.1
100–499 27.4 23.2 31.7
500 or more 7.3 4.5 11.1
Don’t know 2.0 0.7 4.5
Source: GAO survey of Main Street Lending Program participants. | GAO-22-104640
Page 62 GAO-22-104640 Federal Reserve Facilities
Appendix IV: GAO Contact and Staff
Appendix IV: GAO Contact and Staff
Acknowledgments
Acknowledgments
Michael E. Clements, clementsm@gao.gov, (202) 512-8678
GAO Contact
In addition to the contact named above, Tarek Mahmassani (Assistant
Staff Director), Kun-Fang Lee (Analyst in Charge), Carl Barden, Daniel Flavin,
Acknowledgments John Karikari, Christopher Klemmer, Matthew Levie, Joshua Marcus,
Jesse Mitchell, Marc Molino, Bryan Prince, Jessica Sandler, Jennifer
Schwartz, and Farrah Stone made key contributions to this report.
(104640)
Page 63 GAO-22-104640 Federal Reserve Facilities
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