Vice Chair for Supervision Randal Quarles whose four year term is ending used his departure speech to express concern about the manner in which the Fed extended long-term credit to households, businesses and governments as an emergency measure during the COVID-19 pandemic.
“The Fed will at some point need to grapple with the implications of some of the novel emergency lending facilities we established during the onset of the COVID event,” said Quarles. “I supported these facilities in light of the specific challenges the country faced that grueling spring, but I believe it is possible to draw some lessons from the experience and set out some principles for the Fed’s emergency lending to prevent this precedent – or some vision of what it represents—from exceeding reasonable bounds in the future.”
Quarles noted that the unprecedented direct lending by the Fed to non-financial businesses and a wide range of state and municipal governments exposes the Fed to political jeopardy which could be mitigated if during future emergencies Congress were to create a separate agency as an emergency vehicle.
“I believe we should establish a clear understanding that, should the Fed ever again use its 13(3) authority to establish credit facilities similar to those of the COVID event, Congress will without delay create a structure to transfer the ongoing funding and governance of the credit facilities into a non-Fed vehicle that will fund, manage, and eventually wind down the extraordinary credit support,” added the outgoing governor.
As of September 1, 2021, the Fed’s emergency lending programs had approximately $19 billion in assets, according to the US Government Accountability Office.
By Feike de Jong
