Demand for small-dollar loans is likely to spike. Will banks be ready?
By Kevin Wack
The economic costs of the coronavirus pandemic to U.S. households are mounting rapidly. So rapidly, in fact, that these effects generally don’t show up yet in government statistics. …Karen Petrou, managing partner of Federal Financial Analytics, wrote in a blog post Friday that the central bank has the legal authority to provide liquidity to banks for the purpose of offering short-term, low-cost funds to affected consumers and small businesses. She called on the Fed to set up a borrowing facility that would require consumer loans to be on terms that mitigate banks’ risks rather than reinforcing their profits. At the same time, she acknowledged the difficulties involved in establishing such an emergency program on the fly. “None of these complexities is large enough to stop quick action,” Petrou wrote, “if Fed leadership pushes over-punctilious lawyers out of the way and mandates the rapid action the emergency demands.”