Full text
Treasury and Federal Reserve Financial
Assistance in Title IV of the CARES Act
(P.L. 116-136)
Andrew P. Scott, Coordinator
Analyst in Financial Economics
William T. Egar
Analyst in American National Government
Raj Gnanarajah
Analyst in Financial Economics
Marc Labonte
Specialist in Macroeconomic Policy
Rachel Y. Tang
Analyst in Transportation and Industry
Baird Webel
Acting Section Research Manager
Ben Wilhelm
Analyst in Government Organization and Management
April 28, 2020
Congressional Research Service
7-....
www.crs.gov
R46329
SUMMARY
R46329
Treasury and Federal Reserve Financial
April 28, 2020
Assistance in Title IV of the CARES Act Andrew P. Scott,
(P.L. 116-136) Coordinator
Analyst in Financial
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; H.R. 748) was signed Economics
into law as P.L. 116-136 on March 27, 2020, to assist those affected by the economic impact of -redacted-@crs.loc.gov
Coronavirus Disease 2019 (COVID-19). This assistance is targeted to consumers, businesses, and William T. Egar
the financial services sector. A key part of this assistance is provided to eligible businesses, Analyst in American
states, and municipalities in Division A, Title IV of the CARES Act. National Government
-redacted-@crs.loc.gov
Title IV allocates $500 billion to the Treasury Department (through the Exchange Stabilization
Raj Gnanarajah
Fund) to make loans and guarantees for three specified industries—passenger airlines, cargo
Analyst in Financial
airlines, and businesses critical to national security—and to support Federal Reserve lending Economics
facilities. Some have characterized this as a “bailout” of private industry; others assert it is -redacted-@crs.loc.gov
necessary to avoid employment losses and maintain economic stability. Of the $500 billion,
Treasury can make up to $25 billion available to passenger airlines, up to $4 billion to cargo Marc Labonte
airlines, and up to $17 billion to businesses critical to maintaining national security. Treasury can Specialist in
make the remainder—up to $454 billion, plus whatever is not used to assist the specified Macroeconomic Policy
industries—available to the Federal Reserve. The authority to enter into new transactions -redacted-@crs.loc.gov
terminates on December 31, 2020. Recipients are legally required to repay assistance with Rachel Y. Tang
interest, although the ultimate subsidy involved will not be known until terms, such as interest Analyst in Transportation
rates and fees, have been decided and it becomes clear to what extent firms are able to repay. and Industry
-redacted-@crs.loc.gov
Title IV also provides up to $32 billion to continue payment of employee wages, salaries, and
Baird Webel
benefits at airline-related industries. The Treasury Secretary has discretion to determine what
Acting Section Research
compensation to seek for this assistance and has reportedly chosen not to seek compensation Manager
from smaller recipients. According to Treasury, 93 air carriers had received $12.4 billion under -redacted-@crs.loc.gov
the Payroll Support Program as of April 25, 2020.
Ben Wilhelm
Most funding under Title IV has been used to backstop a series of Federal Reserve emergency Analyst in Government
programs created in response to COVID-19. These programs assist affected businesses or Organization and
markets by making loans or purchasing assets. To date, the Fed has created programs to support Management
markets for commercial paper, corporate bonds, municipal bonds, and asset-backed securities, as -redacted-@crs.loc.gov
well as a loan program to help businesses with under 10,000 employees or under $2.5 billion in
For a copy of the full report,
revenues maintain employment. To date, $215 billion of CARES Act funding has been made
please call 7-.... or visit
available by the Treasury to reimburse the Federal Reserve for potential losses on any www.crs.gov.
transactions in these programs.
This assistance carries a number of terms and conditions. All funding faces certain conditions, such as limiting eligibility to
U.S. businesses, as defined by the act, and following rules to avoid conflicts of interest. Firms receiving loans, loan
guarantees, or grants directly from Treasury must maintain at least 90% of March 24, 2020, employment levels; face controls
placed on share buybacks, dividends, and executive salaries; and must provide Treasury specific compensation (e.g., warrants
or equity). In addition, Title IV establishes a special inspector general and a Congressional Oversight Commission to oversee
the operations carried out under the title. Finally, the key agencies involved in providing this assistance (i.e., the Federal
Reserve and Treasury) and the Government Accountability Office must make available to the public and Congress a series of
reports on operations under Title IV of the act.
Congressional Research Service
Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Contents
Introduction ..................................................................................................................................... 1
Financial Assistance in Division A, Title IV ................................................................................... 2
Loans, Loan Guarantees, and Other Support for Selected Industries ....................................... 3
Loans and Loan Guarantees ................................................................................................ 4
Suspension of Aviation Excise Taxes .................................................................................. 4
Air Carrier Worker Support ................................................................................................ 5
CARES Act Funding Available to the Federal Reserve ............................................................ 6
Federal Reserve Emergency Facilities Backed by the CARES Act .................................... 6
Tracking CARES Act Funding for Federal Reserve Programs ........................................... 9
Assistance to States and Municipalities and Medium-Sized Businesses ............................ 9
Terms and Conditions.............................................................................................................. 10
Loan and Loan Guarantee Terms and Conditions for Specified Industries .......................11
Terms and Conditions and Restrictions for the Federal Reserve Facilities ....................... 13
Oversight Provisions ............................................................................................................... 14
Special Inspector General for Pandemic Recovery ........................................................... 14
Congressional Oversight Commission .............................................................................. 15
Schedule for Reports, Disclosures, and Testimony ........................................................... 16
Tables
Table 1. Federal Reserve COVID-19 Emergency Programs Backed by CARES Act
Funding ........................................................................................................................................ 8
Table 2. Comparison of Terms and Conditions Applying to the $500 Billion Provided to
the Exchange Stabilization Fund (ESF) ..................................................................................... 10
Table 3. Reporting, Disclosure, and Testimonial Requirements in Title IV .................................. 16
Table A-1. Comparison of the CARES Act, Title IV, and TARP ................................................... 21
Appendixes
Appendix. Comparisons to the Troubled Asset Relief Program (TARP) ...................................... 18
Contacts
Author Contact Information .......................................................................................................... 22
Congressional Research Service
Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Introduction1
Economic conditions have deteriorated rapidly as the spread of Coronavirus Disease 2019
(COVID-19) has led policymakers to limit or close public institutions and business operations,
increasing financial hardship for many Americans due to layoffs or time off work. Financial
institutions, their regulators, and other government agencies have responded by working with
consumers to allow those affected by COVID-19 to temporarily alleviate their financial
obligations.2 As losses continue to mount on businesses from lower consumer demand and rising
unemployment, Congress has stepped in with legislation aimed at mitigating the economic impact
of COVID-19.
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act; H.R. 748) into law as P.L. 116-136. The CARES Act is a wide-ranging act to
provide relief to consumers, small businesses, and certain industries amid the economic fallout of
COVID-19.3 The law contains two divisions. Division A contains six titles aimed at making funds
available to different entities through various programs, including rebate checks to taxpayers;
loans to small businesses for payroll; protections for consumers with outstanding payments (e.g.,
mortgages, student loans, and rental and healthcare payments); loans and loan guarantees and
other investments to help the financial industry and other selected industries; and other public
funds for federal, state, local, and tribal government programs aimed at managing the disaster
recovery from the national health crisis. Division B provides FY2020 supplemental
appropriations for federal agencies to respond to COVID-19.4 (Hereinafter, title and section
references in this report refer to Division A, unless otherwise specified.)
Title IV of the CARES Act contains numerous provisions aimed broadly at stabilizing the
economy and helping affected households and businesses. It has received considerable attention
for containing funding for industry and financial services.5 Specifically, Section 4003 directs the
Department of the Treasury (Treasury) and the Federal Reserve (Fed) to make up to $500 billion
available to support various businesses in the aviation sector, as well as the financial system.
Some have characterized this as a “bailout” of private industry; others assert it is necessary to
avoid employment losses and maintain economic stability—the two views are not necessarily
mutually exclusive.
Title IV also permits federal guarantees for uninsured bank deposits and money market funds,
which are beyond the scope of this report.6 In addition to the financial assistance provided in Title
1 This section was written by Andrew Scott.
2 For more on policy options to help consumers affected by the Coronavirus Disease 2019 (COVID-19), see CRS
Insight IN11244, COVID-19: The Financial Industry and Consumers Struggling to Pay Bills, by Cheryl R. Cooper.
Additional information on what financial institutions and housing agencies are doing to work with consumers can be
found at CRS Insight IN11278, Bank and Credit Union Regulators’ Response to COVID-19, by Andrew P. Scott and
David W. Perkins; and CRS Insight IN11316, COVID-19: Support for Mortgage Lenders and Servicers, by Andrew P.
Scott and Darryl E. Getter.
3 Access to all the current CRS products pertaining to different aspects of the COVID-19 pandemic can be found at
https://www.crs.gov/resources/coronavirus-disease-2019.
4 For a list of CRS experts on various parts of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act;
P.L. 116-136), congressional clients may see CRS Report R46299, Coronavirus Aid, Relief, and Economic Security
(CARES) Act: CRS Experts, by William L. Painter and Diane P. Horn.
5 For more on Title IV of the CARES Act, see CRS Report R46301, Title IV Provisions of the CARES Act (P.L. 116-
136), coordinated by Andrew P. Scott.
6 For more information, see CRS Insight IN11307, The CARES Act (P.L. 116-136) Section 4008: FDIC Bank Debt
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
IV, the CARES Act provides financial assistance to small businesses in Title I (including the
Payroll Protection Program) and assistance to states and municipalities in Title V. See CRS
Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options, by
Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry for information specifically about
assistance targeting small businesses found in Title I of the CARES Act.
This report provides an overview of Section 4003 and related provisions and explains the terms
and conditions associated with the assistance. The report’s Appendix compares these provisions
to the 2008 Troubled Asset Relief Program (TARP).
Financial Assistance in Division A, Title IV7
This report is about the Title IV provisions specifically designed to provide funding for eligible
businesses, states, and municipalities, as defined by the act.8 In particular, Section 4027
appropriates $500 billion to the Exchange Stabilization Fund (ESF) for use by the Treasury
Secretary,9 and Section 4003 allows Treasury to use the $500 billion to support eligible
businesses, states, and municipalities that have suffered losses due to COVID-19.10 As discussed
in the next section, Section 4003 allocates up to $46 billion for Treasury to directly provide loans
and loan guarantees as follows: (1) not more than $25 billion for passenger air carriers (and
certain related businesses), (2) not more than $4 billion for cargo air carriers, and (3) not more
than $17 billion for businesses critical to maintaining national security. Treasury may make funds
from the remaining $454 billion, plus any unpledged funding from the $46 billion, available to
support Fed facilities to provide liquidity to the financial system through lending to eligible
businesses, states, and municipalities (described in the “Federal Reserve Emergency Facilities
Backed by the CARES Act” section, below).
Section 4029 terminates this authority on December 31, 2020, and allows outstanding loans and
guarantees to be modified, restructured, or otherwise amended, subject to a restriction: the
duration of assistance to the passenger air industry cannot be extended beyond five years from the
initial origination date.
Section 4003 requires recipients to repay this assistance with interest, fees, and in some cases,
compensation in the form of warrants, equity, or senior debt. Under the Federal Credit Reform
Act (FCRA; P.L. 101-508), the Office of Management and Budget and the Congressional Budget
Office are to estimate the subsidy associated with this assistance based on the difference between
the present discounted value of both the assistance and income received by Treasury from
principal and interest payments (along with other forms of compensation).11 The ultimate size of
Guarantee Authority, by David W. Perkins; and CRS In Focus IF11320, Money Market Mutual Funds: A Financial
Stability Case Study, by Eva Su.
7 This section was written by Andrew Scott.
8 Eligible businesses are defined by the act as air carriers and U.S. businesses “that ha[ve] not otherwise received
adequate economic relief in the form of loans or loan guarantees provided under this Act.” States are defined by the act
as including the District of Columbia, U.S. territories, multistate entities, and Indian Tribes.
9 The original purpose of the Exchange Stabilization Fund (ESF) was to allow the Department of the Treasury
(Treasury) to intervene in foreign exchange markets to stabilize the value of the dollar, but the Treasury Secretary has
broad discretion on when it can be used. It has been used in response to the 2008 financial crisis and COVID-19. For
more information, see CRS In Focus IF11474, Treasury’s Exchange Stabilization Fund and COVID-19, by Marc
Labonte, Baird Webel, and Martin A. Weiss.
10 Up to $100 million of the total may be used on administrative costs.
11 If the former were greater than the latter, the assistance would be deemed to have been provided with a positive
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
this subsidy will not be known until terms, such as interest rates and fees, have been decided and
it becomes clear to what extent firms are able to repay.12 By contrast, Sections 4112, 4113, and
4120 provide up to $32 billion in grants to continue payment of employee wages, salaries, and
benefits at airline-related industries. The Treasury Secretary has discretion whether to seek
compensation for these grants.
Treasury has broad discretion to decide how much of each part of the funding to make available
to the specified industries or the Fed, in what form, and for what purpose. These funds are made
available with certain terms and conditions, however (as discussed in the “Terms and Conditions”
section, below). For example, Section 4004 sets executive compensation limits on certain
companies receiving assistance; Section 4019 restricts eligible recipients of assistance to avoid
conflicts of interest; Sections 4114 and 4116 limit recipient firms from taking certain actions; and
Sections 4025 and 4115 prohibit conditioning assistance on entering into collective bargaining
negotiations.
Additionally, several provisions provide enhanced oversight for the Title IV funding programs.
Sections 4018 and 4020 establish a Special Inspector General and a Congressional Oversight
Commission to monitor activities made pursuant to provisions in Title IV, and Section 4026
requires reports from the key agencies—namely Treasury and the Fed—on their Title IV
activities.
The next two sections will focus on the financial assistance provisions granted to specified
industries and for Fed programs.
Loans, Loan Guarantees, and Other Support for Selected
Industries13
Congress chose to make direct Treasury support available to three specific industries (passenger
and cargo airline industries, as well as certain national security businesses) that it deemed
particularly in need of support. This assistance was unlikely to meet certain statutory
requirements for a Fed program (i.e., that Fed assistance be broadly based and not for the purpose
of avoiding bankruptcy),14 and it comes with more terms and conditions than assistance for
recipients of Fed programs supported by the CARES Act. The Title IV support for these
industries comes in three main forms: loans and loan guarantees, tax holidays for certain excise
taxes, and payroll grants for air carrier workers.
subsidy; if the latter were greater than the former, it would be a negative subsidy.
12 The act specifies that the assistance should be recorded in the budget under the Federal Credit Reform Act (FCRA;
P.L. 101-508), which means that the subsidy value of the assistance—as opposed to the total funds provided—is
recorded as spending in the federal budget. Some argue that the present discounted value calculation underestimates the
size of the subsidy because it is calculated using the government’s borrowing cost instead of a private borrowing rate
that includes risk. In its cost estimate of the CARES Act, the Congressional Budget Office (CBO) estimated a subsidy
cost of $1 billion for the assistance to specified industries and zero subsidy cost for assistance to Federal Reserve
programs. CBO assumed that only half of the funds available for specific industries would be lent out at a 10% subsidy
rate and the Fed programs would not be subsidized because the Fed’s 2008 programs did not suffer losses. However, as
discussed below, the terms and purposes of some of the Fed’s COVID-19 programs are fundamentally different from
its 2008 programs. CBO, H.R. 748, CARES Act, P.L. 116-136 April 16, 2020, at https://www.cbo.gov/publication/
56334. For more information, see CRS Report R44193, Federal Credit Programs: Comparing Fair Value and the
Federal Credit Reform Act (FCRA), by Raj Gnanarajah.
13 This section was written by Rachel Tang.
14 12 U.S.C. §343.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Loans and Loan Guarantees
Section 4003 makes up to $46 billion available for federal loans and loan guarantees directly
from Treasury to the aviation sector and to businesses critical to maintaining national security:
not more than $25 billion for passenger air carriers, eligible businesses certified
to perform inspection, repair, replace, or overhaul services, and ticket agents;15
not more than $4 billion for cargo air carriers; and
not more than $17 billion for “businesses critical to maintaining national
security”—a term that the act does not further define. On April 10, 2020, the
Treasury Secretary released information on which types of firms would be
eligible under this definition.16
The Treasury Secretary is required under Section 4006 to coordinate with the Transportation
Secretary to make these loans.17 Other terms and conditions applying to this assistance are
discussed in “Terms and Conditions,” below.
Suspension of Aviation Excise Taxes
Section 4007 institutes a tax holiday under which no excise taxes will be imposed for the
transportation of persons, the transportation of property (cargo), and aviation fuel after the date of
enactment through calendar year 2020. These include a variety of taxes on airline passenger ticket
sales, segment fees, air cargo fees, and aviation fuel taxes paid by both commercial and general
aviation aircraft. They have been the primary revenue sources for the federal Airport and Airways
Trust Fund.18
15 As defined in 49 U.S.C. §40102 (a)(45), ticket agent means a person (except an air carrier, a foreign air carrier, or an
employee of an air carrier or foreign air carrier) that as a principal or agent sells, offers for sale, negotiates for, or holds
itself out as selling, providing, or arranging for, air transportation. Contingent on the Department of Transportation’s
(DOT’s) interpretation “ticket agents” include most travel agents that negotiate and sell airline tickets as part of their
travel products, including those conducting businesses online, such as expedia.com and booking.com.
16 Treasury defined businesses critical to maintaining national security as those that either have the highest priority
contract under the Defense Priorities Allocations System regulations or those that operate under a top secret facility
security clearance under the National Industrial Security Program regulations. Treasury stated that firms that do not
meet either of these definitions may still be considered for loans, however. See Treasury, Q&A: Loans to Air Carriers
and Eligible Businesses and National Security Businesses, updated as of April 10, 2020, at https://home.treasury.gov/
system/files/136/CARES-Airline-Loan-Support-Q-and-A-national-security.pdf.
Reportedly, one intended recipient at the time of enactment was the aerospace manufacturer Boeing. When asked about
the use of this funding, the Treasury Secretary reportedly was quoted as saying, “Right now, Boeing is saying they
don’t need it.” Quoted in Andrew Tangel and Doug Cameron, “Bailout Aids Boeing Even If It Doesn't Tap Funds,”
Wall Street Journal, March 28, 2020. Senator Pat Toomey reportedly was quoted as saying the $17 billion “is not
meant to be exclusively for Boeing.” Quoted in Gregory Wallace and Phil Mattingly, “Boeing Could Receive Billions
From Stimulus Package,” CNN, March 26, 2020. Senator Maria Cantwell reportedly said that the $17 billion was likely
to be used for aerospace manufacturers, including Boeing, and their supply chain. See Dominic Gates, “Cantwell:
Boeing may reject strings attached,” Seattle Times, March 26, 2020.
17 Treasury has issued procedures and minimum guidelines for applicants at https://home.treasury.gov/system/files/136/
Procedures%20and%20Minimum%20Requirements%20for%20Loans.pdf.
18 See CRS Report R44749, The Airport and Airway Trust Fund (AATF): An Overview, by Rachel Y. Tang and Bart
Elias.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Air Carrier Worker Support
Section 4120 appropriates $32 billion to assist aviation workers. From this amount, Section 4112
allows the Treasury Secretary to provide
up to $25 billion for passenger air carriers,
up to $4 billion for cargo air carriers, and
up to $3 billion for contractors who provide ground services—such as catering
services or on-airport functions—directly to air carriers.
All such assistance must be used exclusively for continuing the payment of employee wages,
salaries, and benefits. Section 4117 gives the Treasury Secretary discretion to determine what
compensation to seek for this assistance. Treasury announced it would not seek compensation
from recipients receiving less than a minimum amount under the program.19 The Treasury
Secretary is required to coordinate with the Transportation Secretary in implementing the relief
for aviation workers.
Section 4113 indicates that eligible airlines or contractors would receive an amount equal to their
2019 second- and third-quarter (from April 1, 2019, through September 30, 2019) salaries and
benefits. The law required the Treasury Secretary to publish streamlined and expedited
procedures no later than 5 days from the enactment date and to make initial payments within 10
days from enactment to air carriers and contractors whose requests for such assistance are
approved.20 If it were determined that the aggregate amount of eligible financial assistance
exceeds the amount available, the Treasury Secretary would provide the available aid on a pro
rata basis.
On April 20, 2020, Treasury announced that airlines representing 95% of U.S. capacity were
participating in the Payroll Support Program.21 On April 25, 2020, Treasury announced that 93 air
carriers had received $12.4 billion to date.22
19 Treasury announced that cargo air carriers receiving less than $50 million and cargo air contractors receiving less
than $37.5 million would not be required to provide compensation. See Treasury, “Treasury Implementing CARES Act
Programs for Aviation and National Security Industries,” press release, April 25, 2020, at https://home.treasury.gov/
news/press-releases/treasury-implementing-cares-act-programs-for-aviation-and-national-security-industries.
Reportedly, passenger air carriers receiving less than $100 million would not be required to provide compensation,
whereas “Major airlines must repay 30% of the funds in low-interest loans and grant Treasury warrants equal to 10% of
the loan amount.” See David Shepardson, “U.S. Treasury releases $2.9 billion in airline support, finalizes payroll
agreements,” Reuters, April 20, 2020, at https://www.reuters.com/article/us-health-coronavirus-usa-airlines/u-s-
treasury-releases-2-9-billion-in-airline-support-finalizes-payroll-agreements-idUSKBN22301Z.
20 The procedures were published on March 30, 2020. See Treasury, Guidelines and Application Procedures for Payroll
Support to Air Carriers and Contractors under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and
Economic Security Act, at https://home.treasury.gov/system/files/136/
Guidelines%20and%20Procedures%20for%20Payroll%20Support%20to%20Air%20Carriers%20and%20Contractors.p
df.
21 Treasury, “Treasury Finalizes Agreements with Major Airlines, Disburses Initial Payroll Support Program
Payments,” press release, April 20, 2020, at https://home.treasury.gov/news/press-releases/treasury-finalizes-
agreements-with-major-airlines-disburses-initial-payroll-support-program-payments.
22 Treasury, “Treasury Implementing CARES Act Programs for Aviation and National Security Industries,” press
release, April 25, 2020, at https://home.treasury.gov/news/press-releases/treasury-implementing-cares-act-programs-
for-aviation-and-national-security-industries.
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CARES Act Funding Available to the Federal Reserve23
The Federal Reserve, as the nation’s central bank, was created as a “lender of last resort” to the
banking system when private sources of liquidity become unavailable.24 This role is minimal in
normal conditions but has been important in periods of financial instability, such as the 2007-
2009 financial crisis. Less frequently throughout its history, the Fed has also provided liquidity to
firms that were not banks. In the financial crisis, the Fed created a series of temporary facilities to
lend to or purchase securities of nonbank financial firms and markets under emergency authority
found in Section 13(3) of the Federal Reserve Act (12 U.S.C. §343). It has begun to do so again
in response to COVID-19, even before enactment of the CARES Act.
Although the CARES Act does not preclude the Fed from independently responding to COVID-
19 using its own funds, it is left to the Treasury Secretary to decide whether and how much of the
CARES Act funds to provide to the Fed and on what general terms. After deducting assistance
provided to the three specified industries, the remainder of the $500 billion—at least $454
billion—is available for Treasury to make loans, loan guarantees, or investments in programs or
facilities established by the Fed to “provid(e) liquidity to the financial system that supports
lending to eligible businesses, states, or municipalities.” As noted in the “Financial Assistance in
Division A, Title IV” section, eligible businesses and states are defined by the act. The Fed’s
facilities may make loans, purchase newly issued obligations (e.g., debt securities) directly from
issuers in primary markets, or purchase seasoned obligations from investors in secondary
markets.
The act provides Treasury and the Fed broad discretion on how to structure these programs or
facilities. (Terms and conditions applying to this assistance are discussed in the section titled
“Terms and Conditions.”) Theoretically, the transactions could be structured in many different
ways. In practice, Treasury has used CARES Act funding to make equity investments in Fed
facilities, presumably as a backstop to cover any future losses, as described below.
Federal Reserve Emergency Facilities Backed by the CARES Act
Before enactment of P.L. 116-136, Treasury had already made equity investments through the
ESF in Fed emergency programs created in response to COVID-19. Because the CARES Act
appropriated $500 billion to the ESF, these Fed programs are now, in effect, backed by CARES
Act funding. The programs are the following:25
Commercial Paper Funding Facility (CPFF). The CPFF purchases newly-
issued commercial paper from all types of U.S. issuers who cannot find private
sector buyers.26 Commercial paper is short-term debt issued by financial firms
23 This section was written by Marc Labonte.
24 For background on the Fed, see CRS In Focus IF10054, Introduction to Financial Services: The Federal Reserve, by
Marc Labonte.
25 The Fed created emergency facilities in response to COVID-19 that did not involve CARES Act funding. For
information on those facilities, see CRS Insight IN11327, Federal Reserve: Emergency Lending in Response to
COVID-19, by Marc Labonte.
26 Federal Reserve, “Federal Reserve Board Announces Establishment of a Commercial Paper Funding Facility (CPFF)
to Support the Flow of Credit to Households and Businesses,” press release, March 17, 2020, at
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200317a.htm.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
(including banks), nonfinancial firms, and “asset backed” pass-through entities
that purchase loans.27
Money Market Fund Liquidity Facility (MMLF). The MMLF makes
nonrecourse loans to financial institutions to purchase assets that money market
funds are selling to meet redemptions.28 This reduces the probability of runs on
money market funds caused by a fund’s inability to liquidate assets.29
Primary Market Corporate Credit Facility (PMCCF) and Secondary
Market Corporate Credit Facility (SMCCF). The Fed created two new
facilities to support corporate bond markets—the PMCCF to purchase newly-
issued corporate debt from issuers and the SMCCF to purchase existing corporate
debt or corporate debt exchange-traded funds on secondary markets.30 The issuer
must have material operations in the United States and cannot receive direct
federal financial assistance related to COVID-19.
Term Asset-Backed Securities Loan Facility (TALF). The TALF makes
nonrecourse, three-year loans to private investors to purchase newly-issued,
highly-rated asset-backed securities (ABS) backed by various nonmortgage
loans.31 Eligible ABS include those backed by certain auto loans, student loans,
credit card receivables, equipment loans, floorplan loans, insurance premium
finance loans, small business loans guaranteed by the Small Business
Administration (SBA), or servicing advance receivables.
Main Street Lending Program (MSLP). The MSLP buys loans from depository
institutions that are four-year loans to businesses with up to 10,000 employees or
up to $2.5 billion in revenues. The loans to businesses would defer principal and
interest repayment for one year, and the businesses would have to make a
“reasonable effort” to retain employees. This program may be particularly
attractive to businesses too large to qualify for SBA assistance.
Municipal Liquidity Facility (MLF). The MLF purchases shorter-term state
and municipal debt in response to higher yields and reduced liquidity in that
market. The facility purchases only debt of states, larger counties (with at least
500,000 residents), and larger cities (with at least 250,000 residents).
Some programs were announced with an overall size limit (see Table 1). During the 2008
financial crisis, however, actual activity typically did not match the announced size. These
facilities extend the Fed’s traditional “lender of last resort” role for banks to be the “buyer of last
resort” for broad segments of financial markets that have become illiquid due to COVID-19 and
“lender of last resort” for nonfinancial firms. To extend its traditional role, the Fed has used its
Section 13(3) emergency lending authority. The Fed also used this authority to assist nonbank
27 For more on commercial paper, see CRS Insight IN11332, COVID-19: Commercial Paper Market Strains and
Federal Government Support, by Rena S. Miller.
28 Federal Reserve, “Federal Reserve Board broadens program of support for the flow of credit to households and
businesses by establishing a Money Market Mutual Fund Liquidity Facility (MMLF),” press release, March 18, 2020,
at https://www.federalreserve.gov/newsevents/pressreleases/monetary20200318a.htm.
29 For more on money market mutual funds, see CRS In Focus IF11320, Money Market Mutual Funds: A Financial
Stability Case Study, by Eva Su.
30 Federal Reserve, “Federal Reserve Announces Extensive New Measures to Support the Economy,” press release,
March 23, 2020, at https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm (hereinafter
cited as Federal Reserve, “New Measures to Support the Economy”).
31 Federal Reserve, “New Measures to Support the Economy.”
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
financial firms and markets in the 2008 financial crisis. The 2020 facilities go beyond the scope
of the 2008 facilities by purchasing loans of nonfinancial businesses and debt of states and
municipalities. In some programs, the Fed purchases securities in affected markets directly. In
other programs, the Fed makes loans to financial institutions or investors to intervene in affected
markets; these loans are typically made on attractive terms to incentivize activity, including by
shifting the credit risk to the Fed.
By law, the Fed must structure these facilities to avoid expected losses, and the facilities charge
users interest and/or fees as compensation. To that end, Treasury has pledged ESF funds for each
of these facilities to protect the Fed from future losses—although these losses would still be borne
by the federal government.32 The Treasury Secretary approved each facility.
The loans and asset purchases of the facilities are funded by the Fed using its resources but are
backed by the ESF in the event of losses. The MSLP and the MLF were created after the CARES
Act’s enactment; the other facilities predate the CARES Act. When the CARES Act directed $500
billion to the ESF, all of these programs, in effect, became backed by the CARES Act.33
Table 1 summarizes how much CARES Act funding has been pledged to each facility. In total,
$215 billion has been pledged to date.
Table 1. Federal Reserve COVID-19 Emergency Programs Backed by CARES Act
Funding
(billions of dollars)
Announced Size Limit CARES Act Funds Pledged
Facilities Created Prior to Enactment of CARES Act
Commercial Paper Funding Facility n/a $10
Money Market Fund Liquidity
n/a $10
Facility
Primary Market Corporate Credit
Facility/Secondary Market $750 $75
Corporate Credit Facility
Term Asset-Backed Securities Loan
$100 $10
Facility
Facilities Created Since Enactment of CARES Act
Main Street Lending Program $600 $75
Municipal Liquidity Facility $500 $35
Total n/a $215
Source: CRS.
Note: See the “Federal Reserve Emergency Facilities Backed by the CARES Act” section for details.
There has been talk of how the Fed can “leverage” the CARES Act funding of $454 billion (or
more) into greater amounts of assistance by combining it with the Fed’s funds.34 Although the use
32 The ESF was not used to backstop 13(3) programs in 2008, but some programs were backed by other Treasury funds.
33 The ESF held $93 billion in assets before enactment of the CARES Act. Because some Fed programs were created
using ESF assets before enactment of the CARES Act, it is unclear to what extent these assets could hypothetically be
used to support Fed programs in excess of the CARES Act funding.
34 See, for example, Jeanna Smialek, “How the Fed’s Magic Money Machine Will Turn $454 Billion Into $4 Trillion,”
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
of this term is more colloquial than technical from a financial perspective, Table 1 illustrates how
this is accomplished. For example, the MLF is planned to purchase up to $500 billion of assets
using $35 billion of CARES Act funding.
Tracking CARES Act Funding for Federal Reserve Programs
As required by law, the Fed has issued reports to Congress describing the purpose and details of
each facility.35 Total loans or asset purchases through the facilities are published weekly as part of
the Fed’s balance sheet.36 The Fed also announced that it would publicly report on transactions
under CARES Act 13(3) facilities at least every 30 days. Details of the report are to include,
“names and details of participants in each facility; amounts borrowed and interest rate charged;
and overall costs, revenues, and fees for each facility.”37 In the past, the Fed has provided details
on emergency facilities’ activities in quarterly reports.38
Assistance to States and Municipalities and Medium-Sized Businesses
The act envisions the Fed using CARES Act funding to help two broad groups that had not been
the targets of Fed emergency lending programs up to that point: (1) states (as defined by the act)
and municipalities; and (2) medium-sized businesses, defined as those with between 500-10,000
employees, including nonfinancial businesses. The Fed has not lent to or purchased the securities
of nonfinancial businesses and states and municipalities since the 1930s.39 “Medium-sized”
businesses may be too small to issue publicly-traded debt securities that the Fed is purchasing
through the PMCCF and SMCCF and too large to qualify for SBA assistance provided by the
CARES Act.40 The act encourages, but does not require, the Fed to work with the Treasury
Secretary to create programs assisting these two groups and does not limit Fed assistance to these
two groups only.
New York Times, March 26, 2020, at https://www.nytimes.com/2020/03/26/business/economy/fed-coronavirus-
stimulus.html.
35 See Federal Reserve, “Reports to Congress Pursuant to Section 13(3) of the Federal Reserve Act in response to
COVID-19,” available at https://www.federalreserve.gov/publications/reports-to-congress-in-response-to-covid-
19.htm.
36 See Federal Reserve, “Factors Affecting Reserve Balances - H.4.1,” available at https://www.federalreserve.gov/
releases/h41/.
37 Federal Reserve, “Federal Reserve Board outlines the extensive and timely public information it will make available
regarding its programs to support the flow of credit to households and businesses and thereby foster economic
recovery,” press release, April 23, 2020, at https://www.federalreserve.gov/newsevents/pressreleases/
monetary20200423a.htm.
38 See Federal Reserve, “Quarterly Report on Federal Reserve Balance Sheet Developments,” available at
https://www.federalreserve.gov/monetarypolicy/quarterly-balance-sheet-developments-report.htm.
39 Howard Hackley, Lending Functions of the Federal Reserve Banks, Federal Reserve, 1973, p. 130. See also David
Fettig, Lender of More than Last Resort, Federal Reserve Bank of Minneapolis, December 1, 2002, at
https://www.minneapolisfed.org/publications/the-region/lender-of-more-than-last-resort; James Dolley, “The Industrial
Advance Program of the Federal Reserve System,” The Quarterly Journal of Economics, vol. 50, no. 2 (February 1936)
p. 229; and David H. Small and James A. Clouse, The Scope of Monetary Policy Actions Authorized under the Federal
Reserve Act, Federal Reserve, Working Paper, July 19, 2004, at https://www.federalreserve.gov/pubs/feds/2004/
200440/200440pap.pdf.
40 For CARES Act assistance to small businesses through Small Business Administration programs, see CRS Report
R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R.
Lindsay, and Sean Lowry.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
In particular, Section 4003 presents a detailed proposal for assisting businesses with 500-10,000
employees. This proposal is not required by the act, but the Treasury Secretary “shall endeavor to
seek the implementation of” a Fed facility that provides financing to banks and other lenders to
make direct loans to U.S. “eligible businesses” (as defined) and nonprofits at an interest rate not
higher than 2% and with no principal or interest due for six months to retain their workforces.
There are a series of restrictions on the borrower.
The intended recipient (businesses with up to 10,000 employees) and purpose (to maintain
employment) of the proposed facility are similar to the Fed’s MSLP (described above), which
was formally announced on April 9, 2020, but was publicly discussed before enactment of the
CARES Act. However, the terms differ. Section 4003 states that the medium-sized business
proposal outlined does not preclude the Fed establishing the MSLP.
Terms and Conditions41
Section 4003 sets forth a number of terms and conditions for the assistance provided. Some of
these provisions apply broadly to both assistance extended to the Fed and the specified industries,
and others apply only to specified industries. Table 2 compares and contrasts the various terms
and conditions for each of these programs. In addition, there are oversight and reporting
requirements associated with the assistance, which are detailed in the section titled “Oversight
Provisions.”
Table 2. Comparison of Terms and Conditions Applying to the $500 Billion Provided
to the Exchange Stabilization Fund (ESF)
Specified Industry
Term Assistance Federal Reserve Programs
Eligible borrowers affected by COVID-19 Businesses related to air As defined, eligible businesses,
carriers, cargo air carriers, or states, and municipalities
businesses critical to
maintaining national security
Secretary sets terms, conditions, etc. on Applies Applies
CARES Act funding
10-day deadline for releasing application Applies Does not apply
procedures
Treasury may make loans or loan Applies Applies
guarantees
Treasury may make investments Does not apply Applies
Secretary determination that credit is not Applies Does not apply
available, assistance is prudent, firm has
losses; interest rate reflects risk and
market rates before crisis
Duration is as short as practicable and no Applies Does not apply
more than five years
Share buybacks/dividends prohibited until Applies Applies to direct loans only,
12 months after repayment Secretary may waivea
Maintaining employment levels required Applies Does not applya
Limited to U.S. businesses Applies Applies
41 This section was written by Andrew Scott, Marc Labonte, and Rachel Tang.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Specified Industry
Term Assistance Federal Reserve Programs
Executive compensation restrictions Applies Applies to direct loans only,
Secretary may waive
Firm must issue equity, warrants, or other Applies Does not apply
compensation to government
Assistance ineligible for loan forgiveness Applies Applies
Order of priority on repayment of funds Applies Applies
Administrative authority Applies Applies
Use of private financial agents Applies Applies
Tax treatment for recipient Applies Applies
Special Inspector General jurisdiction Applies Applies to Treasury activities
Conflicts of interest Applies Applies
Congressional Oversight Commission Applies Applies
jurisdiction
Reporting, testimony requirements Applies Applies (subject to 12 U.S.C.
§343(3) requirements)
Public release of assistance or Applies Does not apply
administrative contract agreements
Government Accountability Office studies Applies Applies
Treasury funding appropriated to ESF Applies Applies
Rule of construction Applies Applies
Source: CRS analysis of terms and conditions found in Sections 4003, 4004, 4018, 4019, 4020, 4026, 4027,
4028, and 4029.
Notes: “Secretary” refers to Treasury Secretary. “Specified industries” refer to firms that are related to
commercial airlines, cargo airlines, or those “critical to maintaining national security.” Descriptions are
summarized—see the main text of this report for more detail.
a. The table does not include a number of restrictions that apply only to a Fed facility for mid-size businesses.
Loan and Loan Guarantee Terms and Conditions for Specified Industries
In an effort to ensure assistance is used to maintain employment levels and the ongoing viability
of the recipient, Section 4003 loans and loan guarantees must satisfy several terms and
conditions. To approve the loans, the Treasury Secretary must determine that other credit is not
reasonably available to the applicant at the time of the transaction. The intended obligation must
be prudently incurred by the borrower, and the loan must be sufficiently secured or made at a rate
that reflects the risk of the loan or loan guarantee—to the extent practicable—and not less than an
interest rate based on market conditions for comparable obligations prevalent prior to the
outbreak of COVID-19. The duration of the loan must be as short as practicable—not to exceed
five years. Further, Treasury may not issue a loan or loan guarantee unless it receives warrants,42
senior debt, or equity in the borrower.
42 Warrants give the government the option to buy common stock in a company in the future at a predetermined price.
If the government does not wish to exercise that option in the future, it can sell the warrants back to the firm or to a
third party. If the company’s stock price subsequently rises (falls), the value of the warrant rises (falls). Warrants give
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Additional terms and conditions apply to the loan or loan guarantee recipient. The agreement
must provide that neither the borrower nor any affiliate may engage in stock buybacks, unless
contractually obligated to do so, or pay dividends until 12 months after the date the loan is no
longer outstanding. Until September 30, 2020, the borrower must maintain its employment levels
as of March 24, 2020, to the extent practicable, and may not reduce its employment levels by
more than 10% from the levels on that date. The borrower must certify that it is a U.S.-domiciled
business with significant operations in and a majority of its employees based in the United States.
The borrower must have incurred or must expect to incur covered losses such that the continued
operations of the business are or would be jeopardized, as determined by the Treasury Secretary.
Section 4004 states that Treasury may enter into an agreement to make a loan only if the borrower
agrees to specified limitations on the compensation and severance pay of executives and
employees whose total compensation exceeded $425,000 in calendar year 2019. Total
compensation, as defined in the act, is capped at the individual’s 2019 compensation level, or if
compensation exceeds $3 million, it is also capped at $3 million plus 50% of the 2019
compensation level above $3 million. Further, severance pay for those individuals is capped at
twice the individual’s 2019 compensation level.
Section 4005 establishes an air carrier’s service obligation. It requires an air carrier receiving
financial assistance under the act to maintain scheduled air transportation service, as the
Transportation Secretary deems necessary, to ensure services to any point served by that air
carrier before March 1, 2020, taking into consideration the air transportation needs of small and
remote communities and the needs of healthcare and pharmaceutical supply chains.43 Such
authority and any requirements issued shall terminate on March 1, 2022.
Section 4019 establishes that certain entities are ineligible to participate in Section 4003
transactions. An ineligible entity is a covered individual who owns a controlling interest in that
entity (defined as “not less than 20 percent, by vote or value, of the outstanding amount of any
class of equity interest in an entity”). Covered individuals are the President, the Vice President, an
executive department head, a Member of Congress, or the spouse, child, or spouse of a child of
any of those individuals.
Section 4115 protects collective bargaining agreements for a period lasting from the time
financial assistance is issued and ending on September 30, 2020.44
Terms and Conditions for Air Carrier Worker Support
To be eligible for grants to cover employee salaries under Section 4113, an air carrier or
contractor must agree to
the government some upside profits if the stock price rises, while limiting the government’s exposure (the value of a
warrant cannot fall below zero) if the stock price falls. The value of the warrants depends primarily on their number
and the negotiated purchase price of the stock, both of which are at the discretion of the Treasury Secretary to
negotiate.
43 See DOT, Final Order: Continuation of Certain Air Service Under P.L. 116-136 §§ 4005 and 4114(b), Order 2020-
4-2, April 7, 2020, at https://www.transportation.gov/sites/dot.gov/files/2020-04/
CARES%20Final%20Order%20FINAL.PDF.
44 Section 4115 prohibits Treasury and other federal agencies from conditioning the provision of payroll support
payments on the applicant’s “implementation of measures to enter into negotiations with the certified bargaining
representative of a craft or class of employees of the applicant under the Railway Labor Act (45 U.S.C. §151 et seq) or
the National Labor Relations Act, (29 U.S.C. §151 et seq) regarding pay or other terms or conditions of employment,”
through September 30, 2020.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
refrain from conducting involuntary furloughs or reducing pay rates and benefits
until September 30, 2020;
refrain from stock buybacks and dividends through September 30, 2021;
comply with CARES Act provisions to protect collective bargaining agreements
regarding pay or other terms of employment for a period lasting from the time
financial assistance is issued and ending on September 30, 2020; and
comply with limits on compensation of highly-paid employees, similar to those
described above for airline loans, for a two-year period from March 24, 2020, to
March 24, 2022.
Additionally, the Transportation Secretary is authorized to require, to the extent practicable, that
an air carrier receiving this support continue services to any point served by that carrier before
March 1, 2020, considering factors similar to those described above for airline loans under
Section 4005.
To compensate the government for this assistance, Section 4117 provides that the Treasury
Secretary may receive warrants, options, stock, and other financial instruments from recipients, as
determined appropriate by the Secretary. (See the “Air Carrier Worker Support” section for more
on Treasury’s determination for receiving compensation.)
Terms and Conditions and Restrictions for the Federal Reserve Facilities
Some, but fewer, of the terms and conditions and restrictions placed on the industry assistance
also apply to the Fed. Fed assistance may go only to U.S. businesses (as defined), and the conflict
of interest and reporting requirements also apply to the Fed. Restrictions on executive
compensation and capital distributions (stock buybacks and dividends) do not apply to Fed
programs unless the Fed is providing direct loans to recipients; in the case of the Fed programs,
the Treasury Secretary may waive these requirements “to protect the interests of the Federal
Government.”45 Likewise, requirements to provide the government with warrants or other forms
of compensation do not apply to the Fed programs. As shown in Table 2, fewer restrictions may
have been placed on Fed programs than on the assistance to the three specified industries. Fewer
restrictions may have been placed on Fed programs because of the Fed’s independence from
Congress and the Administration, and because most of the Fed programs are not intended to
prevent recipients’ imminent failure.46
In addition to the conditions and restrictions in the CARES Act, the Fed typically has extended
assistance to nonbank entities under its emergency authority found in Section 13(3) of the Federal
Reserve Act. This authority places a number of restrictions on the Fed’s activities, many of which
were added or augmented by the Dodd-Frank Act (P.L. 111-203).47 For example, actions taken
under Section 13(3) must be broadly based and “for the purpose of providing liquidity to the
financial system, and not to aid a failing financial company.” Actions must also provide security
(e.g., collateral) that is sufficient to protect the taxpayer and is based on sound risk management
practices. Unlike financial firms, some entities impacted by COVID-19 may not have securities
that can be posted as collateral. The CARES Act only states that “any applicable requirements
45 To date, these restrictions have only been applied to the Main Street Lending Program.
46 If the Fed were to create the medium-sized business lending program envisioned in Section 4003, additional terms
and restrictions would apply to that facility.
47 For more information, see CRS Report R44185, Federal Reserve: Emergency Lending, by Marc Labonte.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
under section 13(3) ... shall apply” to Fed programs created under the act. Nevertheless, after the
enactment of the CARES Act, the Fed created the MSLP and MLF under Section 13(3).
Oversight Provisions48
To provide oversight of Title IV, the CARES Act created a special inspector general,
Congressional Oversight Commission, and various reporting requirements.
Special Inspector General for Pandemic Recovery49
Section 4018 establishes a Special Inspector General for Pandemic Recovery (SIGPR) within
Treasury. The SIGPR is nominated by the President with the advice and consent of the Senate50
and may be removed from office in the manner prescribed in Section 3(b) of the Inspector
General Act of 1978.51 The SIGPR is tasked with conducting audits and investigations of
Treasury’s activities pursuant to the CARES Act, including collecting and summarizing the
following information regarding loans provided by Treasury:
“A description of the categories of the loans guarantees, and other investments
made by the Secretary”;
“A listing of eligible businesses receiving loan, loan guarantees, and other
investments” by category;
An explanation and justification for each loan or loan guarantee;
Biographical information about each person hired to manage or service the loans,
loan guarantees, and other investments; and
Financial information, including the total amount of each loan, loan guarantee,
and other investment and the repayment status and any gains or losses.
The SIGPR is empowered to hire staff, enter into contracts, and broadly exercise the same
authority and status as inspectors general under the Inspector General Act of 1978.52 The SIGPR
is required to report to the appropriate committees of Congress within 60 days of Senate
confirmation, and quarterly thereafter, on the activities of the office over the preceding three
months, including detailed information on Treasury loan programs.53 The SIGPR position
terminates five years after the enactment of the CARES Act (i.e., March 27, 2025).
48 This section was written by Ben Wilhelm and William Egar. For more on the CARES Act oversight provisions, see
CRS Report R46315, Congressional Oversight Provisions in the Coronavirus Aid, Relief, and Economic Security
(CARES) Act (P.L. 116-136), by Ben Wilhelm and William T. Egar.
49 For more on the Special Inspector General for Pandemic Recovery (SIGPR), please see CRS Insight IN11328,
Special Inspector General for Pandemic Recovery: Responsibilities, Authority, and Appointment, by Ben Wilhelm.
50 On April 3, 2020, President Trump announced the nomination of Brian D. Miller, who currently serves as a senior
associate counsel in the Office of the White House Counsel. Miller previously served as the Inspector General for the
General Services Administration.
51 5 U.S.C. Appendix.
52 See also CRS Report R45450, Statutory Inspectors General in the Federal Government: A Primer, by Kathryn A.
Francis.
53 The SIGPR is also required under §4020(e)(4)(B) to report to the appropriate committees “whenever information or
assistance requested by the Special Inspector General is, in the judgment of the Special Inspector General,
unreasonably refused or not provided.” The Administration objected to this provision in a signing statement, available
at https://www.whitehouse.gov/briefings-statements/statement-by-the-president-38/.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
From the $500 billion appropriated in Title IV, Section 4018 directs that $25 million shall be
made available to the SIGPR as a nonexpiring appropriation.
Congressional Oversight Commission54
Section 4020 establishes a five-member Congressional Oversight Commission in the legislative
branch. The commission is directed to oversee implementation of Subtitle A of Title IV by the
federal government and to issue regular reports to Congress.
The commission is directed to report to Congress “not later than 30 days after the first exercise by
the Secretary and the Board of Governors of the Federal Reserve System of the authority under
this subtitle and every 30 days thereafter.” Such reports must include
(i) The use by the Secretary and the Board of Governors of the Federal Reserve System of
authority under this subtitle, including with respect to the use of contracting authority and
administration of the provisions of this subtitle.
(ii) The impact of loans, loan guarantees, and investments made under this subtitle on the
financial well-being of the people of the United States and the United States economy,
financial markets, and financial institutions.
(iii) The extent to which the information made available on transactions under this subtitle
has contributed to market transparency.
(iv) The effectiveness of loans, loan guarantees, and investments made under this subtitle
of minimizing long-term costs to the taxpayers and maximizing the benefits for taxpayers.55
The commission is authorized to hold hearings and gather evidence, obtain data and other
information from federal agencies upon request, hire staff, obtain the services of outside experts
and consultants, request the detail of federal employees, and enter into contracts to discharge its
duties.
Members of the commission are to be appointed by the Speaker of the House, the Senate majority
leader, the House minority leader, and the Senate minority leader.56 Appointed commissioners
who are not federal employees are to be paid “at a rate equal to the daily equivalent of the annual
rate of basic pay for level I of the Executive Schedule for each day (including travel time) during
which such member is engaged in the actual performance of duties vested in the Oversight
Commission” and reimbursed for travel expenses. For FY2020, Level I of the Executive Schedule
is $219,200 annually.57
Funding for the commission’s expenses is to be derived in equal amounts from the contingency
fund of the Senate and an “applicable” account of the House. The Treasury Secretary and the
Federal Reserve Board of Governors are instructed to “promptly” transfer funds to such accounts
for the reimbursement of commission expenses.
54 For more on the Congressional Oversight Commission, please see CRS Insight IN11304, COVID-19 Congressional
Oversight Commission (COC), by Jacob R. Straus and William T. Egar.
55 §4020(b)(2)(A).
56 The Speaker of the House, Senate majority leader, House minority leader, and Senate minority leader are each
authorized to appoint one member of the Congressional Oversight Commission. A fifth member is to be appointed
jointly by the Speaker and Senate majority leader, after consultation with the House and Senate minority leaders; this
member is to serve as chairperson of the commission.
57 U.S. Office of Personnel Management, “Salary Table No. 2020-EX,” at https://www.opm.gov/policy-data-oversight/
pay-leave/salaries-wages/salary-tables/pdf/2020/EX.pdf.
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Schedule for Reports, Disclosures, and Testimony
In addition to the establishment of the SIGPR and the Congressional Oversight Commission, Title
IV requires the Treasury Secretary and the Fed Chair to issue reports, make disclosures, and
provide testimony before congressional committees for a number of specified purposes.
Collectively, these provisions require disclosure to Congress and the public of financial and other
details on each transaction under Section 4003(b). These requirements are detailed in Table 3.
Table 3. Reporting, Disclosure, and Testimonial Requirements in Title IV
Submitted
Section Requirement Due Date By Submitted To
4026(a) Online publication of Within 72 hours Secretary of Online publication
information about each after any covered the Treasury
transaction under transaction
§4003(b)(1), (2), or (3).
4026(b)(1)(A) A summary report about Within seven days Secretary of Chairs and ranking
transactions to passenger after a covered the Treasury members of (1) House
air, cargo air, and national transaction Financial Services
security industries. Committee; (2) House
Ways and Means
Committee; (3) Senate
Banking, Housing, and
Urban Affairs
Committee; and (4)
Senate Finance
Committee
4026(b)(1)(B) Summary reports about Within 7 days of Secretary of Online publication
and each loan and loan reporting to the Treasury
4026(b)(1)(C) guarantee made to Congress and
passenger air, cargo air, and every 30 days
national security industries.
4026(b)(2)(A)(i) Reports with all the Within 7 days Federal (1) House Financial
and information required by 12 after a covered Reserve Services Committee; and
4026(b)(2)(A)(ii) U.S.C. §343(3)(C)(i) for transaction and (2) Senate Banking,
transactions involving every 30 days Housing, and Urban
Federal Reserve. Affairs Committee
4026(b)(2)(B) Publication of reports Within seven days Federal Online publication
under §4026(b)(2)(A)(i) or of reporting to Reserve
§4026(b)(2)(A)(ii). Congress
4026(c) Testimony on assistance Quarterly Secretary of (1) House Financial
program. the Treasury Services Committee; and
and Federal (2) Senate Banking,
Reserve Housing, and Urban
Chair Affairs Committee
4026(d) Guidance and application No explicit Secretary of Online publication
materials for loans and loan deadline the Treasury
guarantees to passenger air,
cargo air, and national
security industries.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Submitted
Section Requirement Due Date By Submitted To
4026(e) Publication of relevant Not more than 24 Secretary of Online publication
contracts. hours after the Treasury
entering into a
covered contract
4026(f) Comptroller General December 27, Comptroller (1) Appropriations
report on economic relief 2020, and annually General of Committees; (2) Budget
program. thereafter the United Committees; (3) House
States Financial Services
Committee; (4) House
Transportation and
Infrastructure
Committee; (5) Senate
Banking, Housing, and
Urban Affairs
Committee; and (6)
Senate Commerce,
Science, and
Transportation
Committee
4118 Report on air carrier November 1, Secretary of (1) House Energy and
worker support. 2020, and March the Treasury Commerce, Science,
27, 2021 (updated Space, and Technology,
report) and Transportation and
Infrastructure
Committees; and (2)
Senate Banking, Housing,
and Urban Affairs
Committee
Source: CRS review of the CARES Act (P.L. 116-136).
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Appendix. Comparisons to the Troubled Asset
Relief Program (TARP)58
Over a decade ago, in the financial crisis and recession of 2007-2009, businesses and individuals
in the United States and across the globe faced financial uncertainty unparalleled for a generation.
Although the cause of the financial uncertainty differed greatly between the current circumstances
as a consequence of Coronavirus Disease 2019 (COVID-19) and the financial crisis of 2007-
2009, in each instance Congress has chosen to proactively assist in economic recovery.
As the financial crisis reached near panic proportions in fall 2008, Congress created the $700
billion Troubled Asset Relief Program (TARP) through the enactment in October 2008 of the
Emergency Economic Stabilization Act (EESA; P.L. 110-343). Subsequently, Congress passed the
$787 billion American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5), which
provided relief to certain parts of the economy.59 The CARES Act combines elements of both
aforementioned acts. Title IV of the CARES Act, with its assistance for firms and support of
Federal Reserve financial sector facilities, more closely resembles TARP; a summary of aspects
of TARP that parallel Title IV will be the focus of this appendix.
For a broader overview of the financial sector and industry assistance during the 2007-2009
financial crisis, please see CRS Report R43413, Costs of Government Interventions in Response
to the Financial Crisis: A Retrospective, by Baird Webel and Marc Labonte. For a comparison of
TARP and Title IV of the CARES Act, see Table A-1.
Implementation
The EESA authorized the Treasury Secretary to either purchase or insure up to $700 billion in
troubled assets owned by financial firms. The general concept was that by removing such assets
from the financial system, confidence in counterparties would be restored, and the system could
resume functioning. This authority granted in the EESA was broad. In particular, the definitions
of both troubled assets and financial institutions allowed the Secretary wide latitude in deciding
what assets might be purchased or guaranteed and what might qualify as a financial institution.60
In practice, most TARP funding was not used to purchase troubled assets, instead being dedicated
to capital injections for financial institutions, loans to the auto industry, and assistance for
homeowners at risk of foreclosure. In a limited number of cases, TARP and Federal Reserve
funds were used together. The EESA was later amended to reduce the authorized amount to $475
billion, when it became clear that the amount used would not exceed this amount.61
58 This section was authored by Baird Webel and Raj Gnanarajah. For more information, see CRS Report R41427,
Troubled Asset Relief Program (TARP): Implementation and Status, by Baird Webel.
59 Felix Reichling, Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic
Output in 2014, CBO, February 2015, at https://www.cbo.gov/publication/49958.
60 The definition for financial institution gives examples, such as banks and credit unions, but specifically does not
limit the definition to the types of firms named. The definition of troubled asset includes “any financial instrument”
determined by the Secretary, in consultation with the Chairman of the Federal Reserve, the purchase of which would
promote financial stability.
61 P.L. 111-203, §1302.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Equity Compensation for Treasury
Equity warrants in return for government assistance were specifically provided for in the TARP
statute.62 The warrants were expected to provide a positive financial upside to the taxpayer if the
private companies’ fortunes improved as a result of the government assistance. Although resulting
in positive returns for the government, the amount recouped through warrants ($9.58 billion) was
less than through interest and dividends ($24.38 billion).63 The act did not specifically call for the
government to receive large holdings of common stock. In several cases, however, the
government ended up with large, sometimes controlling, equity positions in private companies.64
The government generally exercised little of the ownership control inherent in these large stakes.
Common equity in companies was typically accepted in return for TARP assistance in order to
strengthen the companies’ capital positions. Such equity also provided a financial upside to the
taxpayers when firms recovered, but it also had a potential downside when firms did not recover
strongly.
Termination Date
The EESA granted the purchase authority for a maximum of two years from the date of
enactment, meaning it expired on October 3, 2010. Commitments made under this authorization,
however, could continue after this date, with no limit on how long assets purchased under TARP
could be held by the government. At present, there continues to be funding disbursed under the
housing assistance program65 and a small amount ($0.04 billion) of bank capital assistance
outstanding.66
Limits on Compensation and Labor Reduction
The EESA included limits on executive bonuses and golden parachutes and provided for possible
compensation clawbacks. The EESA was later amended by ARRA67 to expand these limits and
add additional corporate governance reforms, thus placing additional restrictions on participating
banks in existing Capital Purchase Program contracts. The act amending the EESA also allowed
for early repayment and withdrawal from the program without financial penalty. With the advent
of more stringent requirements for TARP recipients, many banks began to repay, or attempt to
repay, TARP funds. There was no employee retention requirement with TARP.
62 P.L. 110-343, §113.
63 Treasury, Monthly TARP Update, April 1, 2020, at https://www.treasury.gov/initiatives/financial-stability/reports/
Documents/2020.03%20March%20Monthly%20Report%20to%20Congress.pdf (hereinafter cited as Treasury, Monthly
TARP Update, April 2020).
64 These cases included AIG, Citigroup, Chrysler, General Motors, and Ally Financial. The common equity holdings
typically resulted from the conversion of loans or preferred equity. See CRS Report R41427, Troubled Asset Relief
Program (TARP): Implementation and Status, by Baird Webel, Table 5.
65 See Treasury, Monthly Report to Congress: March 2020, April 10, 2020, pp. 3-4, at https://www.treasury.gov/
initiatives/financial-stability/reports/Documents/2020.03%20March%20Monthly%20Report%20to%20Congress.pdf.
66 Treasury, Monthly TARP Update, April 2020.
67 P.L. 111-5, Title VII.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Congressional Oversight
The EESA included a number of oversight mechanisms and reporting requirements.68 Similar to
the CARES Act, it created a TARP Congressional Oversight Panel.69 The TARP Oversight Panel
was a five-member, independent entity established in the legislative branch, appointed by
congressional leadership, and directed to submit regular reports to Congress. In exercising its
duties, the TARP Congressional Oversight Panel issued 30 reports and held 26 hearings between
December 2008 and March 2011, according to its final report. The panel employed a total of 46
staff, utilized 3 detailees, and expended approximately $10.7 million through April 3, 2011.70 The
five-member panel was appointed by the House and Senate leadership.
The EESA also required the Treasury Secretary to provide periodic updates to Congress, with
both monthly overall reports and individual reports detailing “all transactions” made under
TARP.71 The Comptroller General was specifically tasked with oversight responsibilities and
regular audits, with the Secretary directed to provide appropriate facilities, funding, and access to
records to facilitate this oversight.72
Special Inspector General
The EESA created the Special Inspector General for TARP (SIGTARP) position with an initial
$50 million in funding, which has been continued in annual appropriations since. The SIGTARP
was provided similar powers and authorities as other inspectors general to conduct audits and
investigations of TARP and issue quarterly reports until all assets held or insured by Treasury
under TARP were disposed of. The SIGTARP issued its first report in 2010, with its latest report
covering the last quarter of 2019.73 Congress appropriated $22 million in the Consolidated
Appropriations Act, 2020 (P.L. 116-93) for the SIGTARP position in FY2020.
Conflicts of Interest
The EESA required the Secretary to issue regulations or guidelines to “address, manage or
prohibit”74 conflicts of interest arising in TARP, including the purchase and management of assets
and the selection of asset managers and post-employment restrictions.
Minimizing Costs to Taxpayers
The EESA directed the Secretary to minimize the negative impact on taxpayers, including both
direct and long-term costs and benefits. Market mechanism and private sector participation in
operating the program were encouraged. The terms and conditions of Treasury asset purchases
68 Treasury continues to publish TARP reports at https://www.treasury.gov/initiatives/financial-stability/reports/Pages/
default.aspx. Monthly overall reports are required under §105(a) of the EESA (P.L. 110-343).
69 P.L. 110-343, §125. For more on the Congressional Oversight Panel in the CARES Act and in TARP, see CRS
Insight IN11304, COVID-19 Congressional Oversight Commission (COC), by Jacob R. Straus and William T. Egar.
70 See the TARP Congressional Oversight Panel’s final report at https://www.govinfo.gov/content/pkg/CHRG-
112shrg64832/pdf/CHRG-112shrg64832.pdf.
71 P.L. 110-343, §125.
72 P.L. 110-343, §116.
73 See TARP Special Inspector General reports at https://www.sigtarp.gov/Pages/Reports-Testimony-Home.aspx.
74 P.L. 110-343, §108.
Congressional Research Service 20
Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
were to be designed to provide recompense to the taxpayer, including participation in the equity
appreciation of a firm following Treasury asset purchases.
Table A-1. Comparison of the CARES Act, Title IV, and TARP
CARES Act, Title IV TARP
Amount Provided $500 billion to the Exchange Stabilization Up to $700 billion for the newly created
Fund. Troubled Asset Relief Program (TARP); a
subsequent act (P.L. 111-203) reduced
this to $475 billion.
Enacted March 27, 2020. October 3, 2008.
Expiration of Authority December 31, 2020, and allows October 3, 2010. Commitments made
outstanding loans and guarantees to be under TARP authorized to continue after
modified, restructured, or otherwise this date.
amended after that date. Assistance to the
air industry is not to extend beyond the
initial five-year origination date.
Beneficiaries For direct loans or loan guarantees: Financial institutions, auto industry, and
passenger airlines, cargo airlines, and homeowners at risk of foreclosure.
businesses critical to national security. For
Federal Reserve (Fed) emergency
facilities: eligible businesses, states, and
municipalities.
Methods of Assistance Treasury may make loans or loan Purchase or insurance of troubled assets.
guarantees directly to firms or the Fed. In
addition, it may make “other investments”
in Fed programs.
Minimizing Cost to Prohibition on loan forgiveness; loans and Directs the Treasury Secretary to
Taxpayers loan guarantees to specified industries minimize the negative impact on
must be prudent, sufficiently secured, and taxpayers, including both direct and long-
made at a rate that reflects risk. term costs and benefits.
Equity Compensation For specified industries, warrants, equity, For asset purchases, warrants, equity, or
or senior debt required. senior debt required.
Limits on Limits on executive compensation for The Emergency Economic Stabilization
Compensation specified industries. Act (EESA; P.L. 110-343), as amended,
included limits on executive bonuses and
golden parachutes and provided for
possible compensation clawbacks.
Conflicts of Interest Businesses owned by certain members of EESA required the Treasury Secretary to
the Administration or Members of issue regulations or guidelines to
Congress, or their family members, “address, manage or prohibit” conflicts of
cannot be recipients. interest.
Limits on Dividend and Stock buyback and dividend restrictions EESA did not include limits on company
Stock Buyback apply to specified firms that receive dividends and stock buybacks.
assistance for 12 months after repayment.
For Fed programs involving direct lending,
Treasury may restrict.
Employee Retention Specified industries receiving direct loans EESA did not include an employee
and loan guarantees must maintain retention requirement.
minimum employment levels.
Government Budgeting Record outlays as subsidy costs (no Record outlays as subsidy costs with
market risk adjustment). market risk adjustment.
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Treasury and Federal Reserve Financial Assistance in Title IV of the CARES Act
Special Inspector Special Inspector General for Pandemic Special Inspector General for TARP
General Recovery (SIGPR) within Treasury. From (SIGTARP) within Treasury until all assets
the $500 billion, the Coronavirus Aid, held by Treasury are disposed of. Funded
Relief, and Economic Security Act through congressional appropriations;
(CARES Act; P.L. 116-136) directs $25 most recently, $22 million in FY2020.
million to SIGPR. The SIGPR terminates
five years after the enactment of the
CARES Act (i.e., March 27, 2025).
Congressional Five-member Congressional Oversight Five-member TARP Congressional
Oversight Commission established in the legislative Oversight Panel established in the
branch to be appointed by House and legislative branch, appointed by House
Senate leadership. and Senate leadership.
GAO Annual report required. Periodic investigation and reporting
required.
Reports, Disclosures, The CARES Act requires the Treasury EESA required the Treasury Secretary to
and Testimony Secretary and Federal Reserve Chair to provide periodic updates to Congress
issue reports, make disclosures, and with monthly overall reports and
provide testimony before congressional individual reports that detailed all
committees. transactions made under TARP. Periodic
reports were also required from the
Office of Management and Budget and the
Congressional Budget Office.
Source: CRS.
Note: “Specified industries” refer to firms that are related to commercial airlines, cargo airlines, or those
“critical to maintaining national security.”
Author Contact Information
Andrew P. Scott, Coordinator Rachel Y. Tang
Analyst in Financial Economics Analyst in Transportation and Industry
[redacted]@crs.loc.gov
, 7-.... [redacted]@crs.loc.gov
, 7-....
William T. Egar Baird Webel
Analyst in American National Government Acting Section Research Manager
[redacted]@crs.loc.gov
, 7-.... [redacted]@crs.loc.gov,7-....
Raj Gnanarajah Ben Wilhelm
Analyst in Financial Economics Analyst in Government Organization and
[redacted]@crs.loc.gov , 7-.... Management
[redacted]@crs.loc.gov , 7-....
Marc Labonte
Specialist in Macroeconomic Policy
[redacted]@crs.loc.gov , 7-....
Congressional Research Service R46329 · VERSION 1 · NEW 22
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