The Main Street Lending Program (MSLP) was established by the Federal Reserve to provide loans to small and mid-sized firms and large below-investment-grade firms that were financially sound before the onset of the COVID-19 pandemic. The program, which was established under the Fed’s Section 13(3) emergency authorities, is supported by capital from the U.S. Treasury and became operational in July 2020; however, utilization has been slight. We describe the economic challenges in designing a loan support program and evaluate the MSLP program in terms of how it manages significant asymmetric information, adverse selection, poor targeting, and moral hazard problems while protecting taxpayer funds. We contrast the MSLP with other possible approaches, such as subsidies or loan guarantees. We conclude by recommending changes to the program to increase its usage and effectiveness.
English, William B. and Liang, J. Nellie
"Designing the Main Street Lending Program: Challenges and Options,"
Journal of Financial Crises: Vol. 2
Iss. 3, 1-40.
Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/1