Banking

Toomey’s proposal to restrict Fed powers draws Democratic rebuke

WASHINGTON — A proposal to restrict the Federal Reserve’s use of its emergency lending powers was met with swift objections from leading Democrats Friday as lawmakers continued to negotiate a new fiscal stimulus bill.

Several senior Democratic lawmakers criticized a proposal by Sen. Pat Toomey, R-Pa., on Thursday that would prevent the Fed from reviving facilities launched earlier in the coronavirus crisis that the central bank plans to shut down at yearend.

“The GOP Senate’s dangerous demand to include Senator Toomey’s poison pill provision in the COVID-19 relief bill threatens to hamstring our nation’s response to the historic economic crisis of the coronavirus,” House Financial Services Committee Chairwoman Maxine Waters, D-Calif., and House Ways and Means Committee Chairman Richard Neal, D-Mass., said in a joint statement. “If implemented, this unprecedented change to the law would block the Federal Reserve from ever creating lending facilities that help small businesses and state and local governments, taking away one of the important tools to fight this or any future economic crisis.”

The Democrats’ key objection to the amendment is that it will inhibit the incoming administration of President-elect Joe Biden in its ability to stabilize the economy as the coronavirus pandemic continues to take a toll on U.S. businesses.

Sen. Pat Toomey, who will likely chair the Senate Banking Committee if Republicans maintain their majority in the chamber, said the proposal will not eliminate the Federal Reserve’s 13(3) emergency lending authority.

Bloomberg News

“Now they insist on sabotaging the economy before the next administration comes in by hamstringing the Federal Reserve’s ability to support the economy, small businesses, and struggling communities in the future,” said Sen. Sherrod Brown, D-Ohio, the top Democrat on the Senate Banking Committee. “Enough is enough.”

Sen. Elizabeth Warren, D-Mass., noted that the proposed amendment, which Toomey detailed in a call with reporters on Thursday, comes as several Republicans have still not recognized the results of the November presidential election.

“After weeks of refusing to acknowledge Biden’s victory, some Republicans have now decided that sabotaging his presidency is more important than helping our economy recover by insisting that any COVID relief legislation also restrict the ability of the Federal Reserve and the new Administration to help states, cities, and American businesses next year,” said Warren. “Proposals to sabotage President Biden and our nation’s economy are reckless, they’re wrong, and they have no place in this legislation.”

To be clear, Toomey, who will likely chair the Senate Banking Committee if Republicans maintain their majority in the chamber, said the proposal will not eliminate the Federal Reserve’s 13(3) emergency lending authority. He told reporters Thursday that it will simply terminate the facilities that used funding from the Coronavirus Aid, Relief, and Economic Security Act and prevent the Fed from reviving those facilities.

But Sen. Mark Warner, D-Va., said the amendment would weaken the federal government’s ability to respond to future crises.

“Legal experts, senior banking officials, and former Republican and Democratic regulatory officials all agree: the proposal to pull back on the Fed’s 13(3) authority would set a terrible precedent, hurt the Fed’s independence, and weaken its ability to respond quickly to future crises,” Warner said.

Lawmakers had been in the midst of negotiating a new stimulus package, with discussions to funnel more than $900 billion into the economy to help businesses that have had to shutter their doors due to the pandemic.

Sen. Bob Menendez, D-N.J., accused Republicans of blocking a deal.

“Senate Republicans are now suddenly insisting that we limit the federal government’s ability to fight all future economic crises,” Menendez said. “This obstruction has to stop. Democrats will not choose between solving our present economic catastrophe and the ability to fight future downturns. We can, and should, do both for the good of our constituents and their families.”

But Republicans insist that the amendment is simply a measure to ensure that the CARES Act facilities are being used for their intended purpose.

“Our language, which largely mirrors what has been publicly available since September, ensures, as the CARES Act intended, that the five facilities that received CARES Act money expire at the end of the year and cannot be re-started or duplicated without authorization by Congress,” Toomey said Friday.


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