Week in Review

Economic stimulus 

  • Some large banks, including Wells Fargo & Co., said they weren’t ready to handle small business loan applications as part of the economic stimulus package, while JPMorgan Chase & Co. began accepting applications this afternoon after warning clients Thursday that it was still awaiting guidance. As of 11 a.m. on Friday, the first day small businesses could start applying for loans to help them weather the pandemic, 1,926 loans were originated, totaling nearly $757 million from 245 lenders, according to a person familiar with the matter.
  • Securities and Exchange Commission Chairman Jay Clayton said he would relay to Treasury and the SBA concerns among private equity or venture capital-backed firms that they won’t qualify for the government’s small business loan fund. The companies financed by private investors said they wouldn’t qualify as small businesses because they would be considered as one entity controlled by a single investor. 
  • The Treasury Department has said that Social Security beneficiaries who don’t usually file a tax return will automatically receive their $1,200 payment as detailed in the $2 trillion economic stimulus law, a reversal from statements made by the Internal Revenue Service that everyone would have to file a tax return to qualify for the payments. The agency faced backlash from Democrats and some Republicans for requiring more paperwork for Social Security beneficiaries when the government already has their information. 
  • House Speaker Nancy Pelosi (D-Calif.) in an interview floated a retroactive rollback of the state and local tax deduction cap in the next economic rescue package, a measure that would provide a quick cash boost in the form of rebates for an estimated 13 million households, almost all of them earning at least $100,000 a year. A spokesperson for Pelosi said the proposal would be “tailored to focus on middle-class earners and include limitations on the higher end.”

Housing

  • Fannie Mae and Freddie Mac could need another bailout if the coronavirus economic shutdown continues for several months, said Mark Calabria, director of the Federal Housing Finance Agency. Fannie and Freddie could last about 12 weeks before they would need additional funds, Calabria said.

Banks

  • The Federal Reserve is temporarily relaxing rules on Wall Street banks’ ability to take on more leverage, allowing U.S. banks to exclude Treasuries and reserves from their supplemental leverage ratio calculations for one year in an effort to boost credit markets amid the coronavirus pandemic. The move deals a roughly 2 percent cut to capital requirements, according to the Fed, and got the support of Fed Governor Lael Brainard, who doesn’t typically support rollbacks of post-2008 financial crisis measures.
  • The Fed is skeptical that Wells Fargo is ready to have its asset cap lifted, according to people familiar with the situation, even as the bank’s representatives have asked the central bank to temporarily remove the cap so it could lend to customers affected by the coronavirus pandemic. The bank, which could issue $384 billion in additional loans if the restrictions were eased, has confidentially warned the Fed that the company will miss an April deadline to submit a plan for improvements required by the central bank.
  • JPMorgan Chief Executive Jamie Dimon has returned to full-time work, four weeks after he underwent emergency surgery. Dimon said in a memo to bank staff that he is “working remotely like so many of you.”

Economy

  • The Labor Department reported that 6.6 million people applied for unemployment benefits last week, bringing the coronavirus-fueled job loss toll to nearly 10 million. That two-week number is higher than the worst months of the last recession and dwarfs the highest week for unemployment filings before the pandemic: 695,000 in 1982. 
  • Payrolls dropped by 701,000 jobs in March, according to the Labor Department, the most in any month since the height of the Great Recession, and the unemployment rate rose to 4.4 percent from 3.5 percent the previous month. This downturn is expected to worsen if shutdowns continue, raising the possibility that April could show record-breaking labor market declines. 
  • The Fed said it is creating a temporary lending facility allowing foreign central banks with accounts at the Fed to convert their Treasury holdings into dollars, an attempt to “help support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source U.S. dollars other than sales of securities in the open market.” The repo facility for foreign central banks will launch April 6 and last at least six months.
  • A new working paper from two professors at the University of Chicago found that social distancing could save the U.S. economy $8 trillion. The researchers used the “value of a statistical life” tool, in combination with the Imperial College analysis that found that the virus could, without intervention, kill 2.2 million people in the United States.

What’s Ahead

  • The House and Senate are out of session this week. 
  • Former Federal Reserve Chairman Ben Bernanke will share his thoughts on the economic response to COVID-19 during a Brookings webinar Tuesday.
  • The Federal Reserve’s next monetary policy meeting is April 28-29.

Events Calendar (All Times Local)

04/06/2020
American Bankruptcy Institute webinar: “Tools to Navigate the Financial Crisis Related to COVID-19” 12:00 pm
Hudston Institute: “A Conversation with Under Secretary of State Keith Krach on America’s Economic Security” 12:00 pm
04/07/2020
Brookings webinar: “Former Fed Chair Ben Bernanke weighs in on the economic response to COVID-19” 1:00 pm
04/08/2020
American Bankruptcy Institute webinar: “Preference Update: SBRA’s Due Diligence Requirement” 1:00 pm
SEC Open Meeting 3:00 pm
View full calendar

Watch On-Demand: What New Data Tells Us About the Labor Market, Unemployment and a Recession

For a better understanding of the pandemic’s impact on unemployment and the broader economy, Morning Consult gathered a team of experts to discuss new data examining how prepared consumers are for the economic downturn and what consumer confidence tells us about a potential recession.

A copy of the presentation, a recording of the full webinar, and a copy of our recent white paper on using consumer confidence to track a recession can be accessed here.

Morning Consult Finance Top Reads

1) Small-Business Loans Expected to Start Friday, Mnuchin Says
Kate Davidson, The Wall Street Journal

2) Wall Street Is Quietly Telling Companies Not to Draw Their Loans
Michelle F Davis and Paula Seligson, Bloomberg

3) Mnuchin says small business rescue loans launch Friday, despite lender confusion
David Lawder and Pete Schroeder, Reuters

4) Moderate social distancing yields $8 trillion in economic benefits, study finds
Christopher Ingraham, The Washington Post

5) Cities That Went All In on Social Distancing in 1918 Emerged Stronger for It
Emily Badger and Quoctrung Bui, The New York Times

6) Government to Begin Sending Stimulus Payments in the Next Three Weeks
John D. McKinnon, The Wall Street Journal

7) Dow falls 900 points as Wall Street fears coronavirus will shut down economy longer than expected
Fred Imbert and Maggie Fitzgerald, CNBC

8) Fed Launches New Lending Facility for Foreign Central Banks
Nick Timiraos, The Wall Street Journal

9) Pelosi Floats New Stimulus Plan: Rolling Back SALT Cap
Jim Tankersley and Emily Cochrane, The New York Times

10) Private equity groups seek US small business rescue loans
James Fontanella-Khan et al., Financial Times

Morning Consult