(Bloomberg) -- Banks said “overly restrictive” terms for borrowers discouraged them from approving more loans under the Federal Reserve’s Main Street Lending Program, while others cited “unattractive” terms for lenders for not participating at all, a new Fed survey showed.
“Major fractions of banks of all sizes indicated that the loss sharing with the MSLP in the event of a default was too uncertain, and that the required certifications and covenants were too restrictive for the bank,” the Fed said Tuesday in releasing the results of a special edition of its Senior Loan Officer Opinion Survey on Bank Lending Practices.
Banks that had declined to take part in the program mentioned “their ability to provide credit to eligible borrowers without the MSLP, as well as unattractive key MSLP loan terms for lenders as reasons for not registering,” the report said.
The results revealed a wide gap between how banks view the Main Street program and how key Fed officials see it.
Eric Rosengren, president of the Boston Fed, which administers the program, said in a Sept. 23 speech that the terms “should be attractive to banks, both because of the fees collected” and because the Fed buys out 95% of every loan.
He then pointed a finger at larger institutions for not participating. “None of the nation’s largest banks, by this metric, are currently active in the program,” he said.
The Main Street program has come in for criticism and scrutiny from lawmakers for so far lending out only about $2 billion of its $600 billion capacity.
The survey also showed banks expect loan inquiries from businesses of an eligible size to increase over the next three months, but “only a modest share of banks expected their willingness to extend MSLP loans to increase over the same period.”
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