Updated: June 26, 2020 at 12:00 p.m. EDT
Hello, everyone – we hope you and your families are all healthy and doing well.
As always, details regarding the policy response to the Covid19 crisis continue to unfold rapidly, with further guidance on already implemented programs, as well as additional legislation and potential new assistance programs, still expected. Continue to regularly check CAE’s twitter feed for the latest developments.
Once Again – 1.5 Million Americans Apply for Unemployment Assistance
On Thursday, the Labor Department announced that in the week ending June 20th, an additional 1.48 million Americans filed first-time claims for unemployment benefits – a decrease of 60,000 from the previous week’s revised level, but significantly more than the 1.3 million expected by economists. The report marks the 14th straight week of initial claims of more than 1 million – and more than twice the pre-crisis weekly record of 695,000 set in 1982.
While the number of Americans applying for unemployment continues to decline, the rate of decline has slowed significantly. Moreover, Thursday’s report showed that lay-offs continue to spread into new segments of the economy. Since the onset of the Covid19 crisis in March, more than 47 million working-age Americans – one of every four – have filed for unemployment benefits.
Business Shutdowns Persist
The majority of businesses that have closed during the Covid19 pandemic remained closed this month, according to data released by the on-line review site Yelp. Roughly 140,000 Yelp-listed businesses that had closed since March 1st remained closed on June 15th. A large minority, 41 percent, have closed permanently, according to Yelp. The company also identified a surging interest in supporting black-owned businesses amid racial-equality activism following the death of George Floyd.
Lack of Child Care Hurting the Recovery
Unlike many developed countries where childcare and early education are heavily subsidized, the United States has no national childcare policy. American families spend an average of $9,000 to $9,600 annually for one child’s care. Childcare is more expensive than in-state college tuition in 28 states, and all 50 states and the District of Columbia fail the government’s own definition of affordability.
A roundtable with women founders and members of the Senate Entrepreneurship Caucus in September of last year – suggested and arranged by CAE – revealed that a lack of reliable and affordable child care is a major obstacle to higher rates of entrepreneurship among women.
Now, new academic research and survey data show that the lack affordable child care is undermining the economic recovery from the impact of Covid19 by keeping many working parents from returning to the office – threatening to extend the economic crisis and erode decades of gains for women in the workplace.
And the problem is on track to only get worse. The need to implement costly safety and social distancing measures could eliminate as much as half of the nation’s child care capacity, according to research by the Center for American Progress. Between February and April, more than a third of child day care service jobs were eliminated.
White House Extends Immigration Restrictions
On Monday, the White House blocked entry of several categories of foreign workers in a new presidential proclamation that will extend through the end of 2020. The announcement also expands President Trump’s April 22nd Executive Order denying green cards to applicants in several immigrant visa categories. The White House said the step was necessary was to protect American jobs amid the worst unemployment crisis since the 1930s.
The restrictions – which apply to H-1B, L, J and H-2B visas – will prevent foreign workers from filling 525,000 jobs, according to the Administration. The measures apply only to applicants seeking to come to the United States, not workers already in the country.
Industry groups – including CAE – sharply criticized the move, arguing it was unnecessary and would undermine economic growth and job creation. Indeed, corporations are already reporting that the restrictions have been a boon for job creation – in Canada and the United Kingdom.
Treasury and SBA Agree to Share PPP Information
In a letter released yesterday, the Treasury Department and Small Business Administration notified Congressional committees that they will get complete access to individual loan data from the Paycheck Protection Program – going far beyond what the agencies have agreed to share with the broader public. A bipartisan group of lawmakers has been seeking greater disclosure of information pertaining to loan borrowers.
In the letter, Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza said that by the end of next week they expect to provide lawmakers “full access to all PPP loan-level information – including, but not limited to, all borrower names and loan amounts.” Secretary Mnuchin and Administrator Carranza said they would share the data with the understanding that “nonpublic personally identifiable and commercially sensitive business information will be treated as confidential.”
During Congressional testimony two weeks ago, Secretary Mnuchin ignited controversy when he said the Trump Administration would not reveal the names of companies and nonprofits that have received PPP loans, which are guaranteed by the taxpayer and can be forgiven in full if borrowers maintain their payrolls. Secretary Mnuchin said at the time that the names and specific loan amounts were “proprietary” and “confidential.”
The Treasury and SBA letter reversing that position came the same day that the Government Accountability Office released a report calling on Congress to better police the small business loans program, which the GAO said was ripe for fraud and lacking key oversight.
Meanwhile, the Wall Street Journal reported last Friday that PPP design flaws and ever-evolving loan forgiveness criteria have wasted government funds and jeopardized the survival of many companies who received assistance from the program.
Former Chairman of Joint Chiefs Likely to Head Oversight Commission
Retired General Joseph Dunford, who stepped down last fall after four years as Chairman of the Joint Chiefs of Staff, is the leading candidate for Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Mitch McConnell (R-KY) to chair a five-member Commission, created by the CARES Act, to monitor the Trump administration’s economic rescue effort amid the Covid19 pandemic. Dunford must still go through an ethics review, according to multiple Congressional sources, and no final decision has been made on his appointment.
The Commission is tasked with overseeing the $500 billion fund, run by the Treasury Department and the Federal Reserve, intended to shore up business, industries, and local governments impacted by the coronavirus pandemic.
Under the terms of the CARES Act, Speaker Pelosi and Leader McConnell are authorized to jointly pick the Commission’s chair. The other four members were picked individually by Pelosi, McConnell, and their counterparts – House Minority Kevin McCarthy (R-CA) and Senate Minority Leaders Charles Schumer (D-NY). Speaker Pelosi selected Rep. Donna Shalala (D-FL), Leader McCarthy picked Rep. French Hill (R-AK), Leader McConnell picked Sen. Pat Toomey (R-PA), and Leader Schumer picked Bharat Ramamurti (D-MA).
Federal Banking Agencies Lift “Volcker Rule” Restrictions on Venture Capital Investment by Banks
The Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation (FDIC) announced yesterday finalization of a rule modifying “Volcker Rule” restrictions on banks investing in or sponsoring so-called “covered funds,” including venture capital funds. The announcement finalizes changes to the Volcker Rule originally proposed in January.
The final rule will be effective on October 1, 2020.
The final rule will generally exclude venture funds from Volcker Rule covered funds restrictions, permitting banks to invest in or sponsor certain types of funds – including credit funds, venture capital funds, customer facilitation funds, and family wealth management vehicles – that do not raise supervisory concerns the Volcker Rule was intended to address.
Lifting Volcker Rule restrictions on banks’ participation in venture funds has been a policy priority of CAE’s since the organization’s launch in July on 2017, and was the subject of several meetings conducted by CAE staff with Federal Reserve and OCC officials in 2018.
The full explanation of the changes can be found on pages 81-103 of the Federal Register publication of the final rule entitled “Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds.”
In a statement issued Thursday, Federal Reserve Board Governor Randy Quarles, Vice Chairman for Bank Supervision, said that the announced changes to the Volcker rule regarding venture funds:
“…would allow a banking entity to engage in certain activities indirectly through a fund structure. However, existing law has long allowed banking entities to engage directly in these activities. So, today’s final rule simply allows banking entities to engage in already permitted activities, such as venture capital investment, through a fund structure. While these activities are appropriate generally, ensuring the ability of the financial sector to support the real economy through the broadest means possible under the law is particularly important today.
And to mitigate any risks present with activity through a fund, the final rule does not allow banking entities to engage in proprietary trading through a fund structure, restricts a banking entity from bailing out the funds it sponsors, limits conflicts of interest between the banking entity and fund, and of course, the activity remains subject to robust capital charges even if it is conducted through a fund structure.”
In a staff memo issued with the final rule, Federal Reserve staff stated:
“Venture capital funds serve an important role in providing financing for non-publicly traded companies, including companies with limited funding options. During congressional consideration of the Volcker Rule, several members of Congress expressed support for permitting banking entities to engage in venture capital activities. In addition, Congress authorized SBICs, which have similarities to venture capital funds. The limitations on qualifying venture capital funds would help to address the policy goals of Congress when enacting the Volcker Rule, including eliminating incentives that a banking entity may have to bail out a covered fund during times of stress.”
Key Details
- The final rule, like the January proposal, would allow banking entities to acquire or retain ownership interests in, or sponsor, certain venture capital funds, to the extent the banking entity is permitted to engage in such activities under applicable law.
- The announced changes were also approved by the Securities and Exchange Commission and Commodity Futures Trading Commission.
- Only “venture capital funds” as defined in Securities and Exchange Commission regulations qualify for the exclusion.
- The draft final rule would also prohibit a qualifying venture capital fund from engaging in proprietary trading.
- Furthermore, a banking entity that acts as a sponsor or investment adviser to the venture capital fund would be prohibited from guaranteeing the fund’s performance, required to disclose this prohibition to fund investors, and required to comply with the Super 23A restrictions as if the fund were a covered fund.
CAE staff continues to read through the final rule and will report on any important details.
If you have any questions about the topics covered in this update, CAE’s ongoing activities, or anything else, I can be reached any time at [email protected] or (202) 821-9448.
