Designing the Main Street Lending Program: Challenges and Options

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

Share repurchases and employee stock options and their implications for S&P 500 share retirements and expected returns

We estimate the effects of share repurchases and employee stock option exercises on net share retirements for large S&P 500 companies. We find that, over the past five years, gross repurchases have reduced shares outstanding 2 percent annually; but, owing to the exercise of employee stock options, only about half of those shares were actually retired. Given the recent pace of employee stock option grants, and assuming that equities continue to be priced at about 30 times earnings, our analysis suggests that the pace of net share retirements will fall well below the pace of the last few years, unless corporations use nearly all their earnings to fund shareholder payouts. Moreover, over the long haul, assuming corporations need to retain 40 to 50 percent of their earnings to invest and grow at historical rates, the long-run average pace of net share retirements is likely to fall to 1/2 percent or less.Stock - Prices ; Stocks

The nonbank activities of bank holding companies

Bank holding companies ; Nonbank activities