Washington, D.C. — A new report from the Center for American Progress looks at how the Federal Reserve’s support for the oil and gas industry, through its emergency lending programs, is inappropriate given its responsibility to safeguard the financial system.
Long before the coronavirus pandemic, the oil and gas industry was is deep financial trouble due to depressed oil prices caused by the global oil surplus and other factors. But as Gregg Gelzinis, Michael Madowitz, and Divya Vijay explain in “The Fed’s Oil and Gas Bailout Is a Mistake,” in recent months, the industry has used its influence with the Trump administration and its allies in Congress to shape Fed programs designed to provide emergency coronavirus relief. The ailing industry was successful in changing the scope of the Fed’s Main Street Lending Program (MSLP), designed to help small and midsized businesses, to benefit itself. The Fed is also now breaking long-standing precedent by buying junk exchange-traded funds in its large corporate credit facilities, which carry the debt of troubled or bankrupt oil and gas companies. Propping up the oil and gas industry runs counter to the Fed’s financial stability mandate. These companies are fueling the climate crisis, which poses serious risks to financial institutions and markets.
Importantly, none of the large corporate bailout facilities include any conditions for the companies receiving government support, such as restrictions on share buybacks and dividends, limits on executive compensation, or payroll maintenance requirements.
The report outlines five steps the Fed could take going forward to align its emergency lending facilities with its financial stability mandate:
- Prohibit the fossil fuel sector’s access to the emergency lending facilities. At the very least, the Fed should refrain from expanding the oil and gas industry’s access to the facilities.
- Evaluate and disclose the risks that climate change poses to its emergency lending portfolio.
- Account for and disclose the level of greenhouse gas (GHG) emissions that it is financing through these emergency programs.
- Develop and publish a plan to limit its financed GHG emissions.
- Seek to actively mitigate the financial stability risks of climate change by joining the Network for Greening the Financial System and incorporating climate risk into its regulatory and supervisory framework.
“By bailing out the already struggling oil and gas industry, the Fed is putting good money after bad and using public funds to prop up fossil fuel speculators’ bad bets,” said Gelzinis. “The fossil fuel sector is actively contributing to a major systemic threat to the financial system—climate change. The Fed is supposed to mitigate, not exacerbate, such risks. Limiting the industry’s access to these emergency programs would help protect public funds, the financial system, and the planet.”
Read: “The Fed’s Oil and Gas Bailout Is a Mistake” by Gregg Gelzinis, Michael Madowitz, and Divya Vijay
For more information on this topic or to speak to an expert, contact Julia Cusick at [email protected].