The Washington Wrap is a weekly recap of financial regulation, news and chatter from around the capital. Send tips and ideas to email@example.com.
U.S. policymakers are continuing to move forward with steps to rescue the U.S. economy from the coronavirus pandemic, though key economic indicators are already rapidly deteriorating and appear poised to get worse.
The jobs report for March was the latest sign of the toll the pandemic has taken on U.S. growth, with the job losses of 701,000 far exceeding economists' expectations. The figure was even more surprising given that it was based on the Bureau of Labor Statistics' survey from the second week of March, ahead of the brunt of the layoffs that have happened thus far.
The scope of those layoffs was more evident in an April 2 report showing that a record 6.65 million people filed for unemployment benefits in the week ended March 28, adding to the 3.31 million who did so the prior week.
Although the U.S. unemployment rate jumped to 4.4% in the March jobs report, April's figure will be "much worse" given that it will factor in those who have been laid off in the last two weeks, according to Michelle Meyer, head of U.S. economics at Bank of America.
The recovery "should be swift" once the virus is contained and quarantine measures are lifted, given that furloughed workers will be able to get back to work, Meyer wrote in an April 3 research note. But the job market is unlikely to recover to its prior strength for quite some time, she added.
"It will take unemployed workers some time to find work, keeping the unemployment rate well above levels seen prior to the pandemic and only slowly falling in 2021," she wrote.
President Donald Trump and leaders in Congress, which is in recess at the moment, are already eyeing their next steps.
Trump is seeking some $2 trillion in infrastructure spending, on top of the CARES Act, a $2.2 trillion fiscal package he signed into law last week. House Speaker Nancy Pelosi, D-Calif., is open to infrastructure investments but said in a CNBC interview April 3 that lawmakers may need to prioritize expanding the scope of the CARES Act. The law, already the largest fiscal stimulus package in U.S. history, was a "good model" but is "not enough," Pelosi said.
The focus in the banking space this week was in large part centered on one key part of the CARES Act, which called for $350 billion in lending through a program operated by the Small Business Administration and Treasury Department.
The Paycheck Protection Program officially launched April 3 but got off to a rocky start, with banks expressing frustration that the agencies have failed to provide clear guidelines and small businesses reporting issues when seeking to apply for the loans.
National Federation of Independent Business President Brad Close said in a late afternoon statement that the trade group is "hearing from far too many small businesses, today, that they are being shut out" of the program.
"This has the potential to be the last straw for many small businesses and their employees," Close said.
In a tweet around 2 p.m. ET, Treasury Secretary Steven Mnuchin said officials have processed over $1.8 billion in loans thus far, most of them from community banks.
"Big banks taking in large amounts but not yet submitted in these numbers!" Mnuchin wrote.
Bank of America Corp. was the first giant U.S. bank to begin accepting applications under the program, saying it had received about 10,000 applications by 10:00 a.m. ET. Even so, CEO Brian Moynihan told CNBC that employees worked all night to add a new component to the bank's app and that it is only currently accepting applications from existing small-business customers, not new ones. Trump credited Bank of America for its work in a tweet.
"Great job being done by @BankofAmerica and many community banks throughout the country. Small businesses appreciate your work!" he wrote.
Another large task on Treasury's hands is putting out guidance on a massive lending program it will partner with the Fed on, an issue that trade groups from a wide swath of industries are pushing policymakers on to ensure their firms can access the loans. Under the CARES Act, the Treasury is getting $454 billion in funds to provide credit protection for the Fed's emergency lending operations, a backstop expected to lead to about $4.5 trillion in Fed lending.
The work that agency officials undertake over the next few days to implement the CARES Act will "ultimately determine the effectiveness" of the law, said Isaac Boltansky, a policy analyst at the research firm Compass Point.
"Now that it has been enacted, the truth is the most difficult part has just begun — and that's the implementation of the legislation," Boltansky said in an interview.
In other news this week, the Fed said it would temporarily exclude U.S. Treasurys and the deposits banks keep at the Fed from its supplementary leverage ratio calculations, one of the regulatory capital safeguards large banks are required to meet. Without any changes to capital rules, the growth in banks' balance sheets stemming from large deposit inflows could otherwise lead to a "sudden and significant increase in the regulatory capital needed" for a bank holding company to meet their SLR standards, the Fed said.
Sen. Sherrod Brown, D-Ohio, took issue with the change, saying in a statement that the leverage ratio was implemented because regulators "proved time and time again they were bad at estimating banks' risks" in any risk-based capital requirements.
"Right now as we deal with the economic fallout of Coronavirus it is vital that financial watchdogs prioritize our economy's recovery instead of weakening important economic protections," said Brown, who is the top Democrat on the Senate Banking Committee.
The Fed said the change will lead to an overall reduction of 2% in bank holding companies' Tier 1 capital requirements.