Big Banks Aren’t Embracing Fed’s Main Street Loan Program

WASHINGTON — The Federal Reserve Bank of Boston on Wednesday released a list of lenders that have signed up for the central bank’s midsize-business lending program and are willing to make loans to new customers through the initiative.

Noticeably absent are most of the nation’s biggest banks. Only Bank of America has so far agreed to participate and take on new clients, based on the Boston Fed’s release, while lenders like JPMorgan Chase, Citigroup and Wells Fargo are not listed.

Only about 90 banks agreed to publicly say they are willing to lend to new customers and were listed. Most states have only a handful of such lenders, with seven listed in California and nine in New York, based on the Boston Fed’s release.

Banks can also participate in the program by making loans to existing clients. While thousands of banks are eligible to sign up, about 400 have registered or were in the process of doing so as of Wednesday, the Boston Fed said. The Fed has not released a full list of all banks participating in the program.

The Fed’s midsize-business initiative, called the Main Street Lending Program, opened for lender registration in June and became fully operational on Monday. The Fed first said it would set up a Main Street option in late March, but it had never tried to support midsize businesses before, and Chair Jerome H. Powell has said designing the program was a challenge.

Even after multiple revisions, thousands of comments and extensive congressional grilling, it remains unclear how extensively the program will be used. Many lenders report that they are hearing of only limited borrower interest in the program.

Banks themselves seem hesitant. Some states have few Main Street lender options: In Hawaii, where businesses have been hard hit by a decline in tourism, Bank of America is the sole bank publicly promoting that it is willing to take on new borrowers through the program, according to the Boston Fed.

Wells Fargo is registered for the overall program but declined to comment on the record on whether it will accept new customers. Citi is registering but will not lend to new customers, a spokeswoman said, and JPMorgan said only that it was in the process of registering.

The Main Street program works through banks, which make loans with fairly low interest rates and attractive payback terms to businesses. The Fed then buys 95 percent of each loan from the bank, leaving the original lender with some skin in the game. The program is backed up with Treasury funding provided by the coronavirus stimulus bill.

The program has seen some loans submitted for purchase since it opened on Monday, said Eric Rosengren, president of the Boston Fed. Most came from smaller banks, he said, and they went to businesses including movie theaters, oil well servicers and software companies. He declined to put a number on the program’s use so far, or to say whether it is likely to come anywhere near its $600 billion capacity.

“It’s a relatively slow ramp-up,” Mr. Rosengren said in an interview, adding that he thought that was because “both banks and borrowers are getting familiar” with the complicated program.

Asked why the full list of registered banks — not just those that have opted to be named — was not being made public, Mr. Rosengren said the Fed wanted to encourage banks to use the program.

Banks that make Main Street loans will eventually have their names made public, but those that register and then never use it could remain anonymous.

While many big banks, measured by assets, are absent from the state-by-state list of lenders accepting new clients, lenders including Truist, Citizens, BBVA and Zions are registered and made it clear that they would take new customers.

“Registration in the Main Street Lending Program understandably takes time; that a lender is not on the initial list does not necessarily mean it is not participating,” said Barbara Hagenbaugh, a spokeswoman for the Financial Services Forum, which represents top executives of the biggest banks.

Far fewer banks are slated to participate in the Main Street program than the Paycheck Protection Program, which is being run through the Treasury and the Small Business Administration. That program, which provides forgivable loans to small businesses, is almost risk free for banks since the government guarantees the loans and forgives those that are eligible. Banks also make a fee on each loan they originate and stand to profit from their participation, based on an S&P Global Market Intelligence analysis.

Citigroup and JPMorgan have pledged to donate net profits to charity, while Wells Fargo said it would donate all fees — not just the amount that exceeded its costs. In early May, Bank of America said its profits from the program would be used to “support small businesses and the communities and nonprofits we serve,” though it remained vague on exactly where the money would go.

Exactly how much the big banks earned remains unclear. The fees associated with the Paycheck Protection Program aren’t delivered to the banks until the loans they made to borrowers are officially forgiven. The process of applying for forgiveness has just begun and is expected to take months or even years to complete.

A Wells Fargo spokesman said the bank had only just begun receiving fees. Citi made a $25 million donation to its charitable arm on June 29 based on an estimate of what it might earn from the program, but is acknowledging that the number could change.

The small-business lending program created problems for big banks, entailing fast-evolving guidance, lawsuits and rampant technical errors. That might have left a sour taste that will dissuade Main Street participation.

The loan program for midsize businesses is also very different since the debt must be repaid, and banks must retain some of the credit risk. While lenders can earn origination and servicing fees for the loans, they may not be sufficient to encourage participation.

Concerns that only poorly faring companies will opt into the program, as well as political and regulatory considerations, could discourage banks from signing up, Goldman Sachs wrote in an analysis on Wednesday.

Companies have five years to pay back the loans, and principal and interest are initially deferred. But the Main Street program’s minimum loan size is $250,000, and lenders have flagged reporting requirements as something that could dissuade smaller firms from using the program.

Because the program offers direct loans, Congress also set out restrictions in allocating money for the program, including executive compensation limits and stock repurchase and dividend payout limits.

The various restrictions and prospect for greater scrutiny “will likely make these loans unattractive for borrowers that can obtain market financing, even at a somewhat higher rate,” the Goldman analysis said.

Mr. Rosengren said the program's goal was not to make as many loans as possible but to support companies that went into the pandemic in good health and had trouble getting access to credit.

“We want firms and banks to really need it to use it,” Mr. Rosengren said. As states fail to contain the coronavirus’s spread, even firms that thought they could make it through this period without more financing might find that they were wrong, he said.

“The demand is very contingent on what happens with the pandemic.”

Emily Flitter contributed reporting from New York.