An interim final rule allowing financial institutions to neutralize regulatory capital effects with respect to leverage and risk-based ratios for loans pledged to a new “Payroll Protection Program Loan Facility” was announced Thursday by the federal banking agencies.
The interim rule, the Federal Deposit Insurance Corp. (FDIC) said, takes effect immediately. The Federal Reserve and the Office of the Comptroller of the Currency (OCC) joined the FDIC in issuing the rule.
The facility (which the Federal Reserve announced with little detail on Monday), would allow Federal Reserve Banks to extend non-recourse loans to institutions eligible to make the PPP loan program. (The loan program was created under the Coronavirus Aid, Relief and Economic Security Act [CARES Act], enacted into law March 27.) PPP loans guaranteed by the SBA that are originated by eligible financial institutions may be pledged as collateral to the Federal Reserve Banks.
The Fed, in a release Thursday, said the intent of the facility is to extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.
The program was created to help small businesses weather the coronavirus pandemic through the Small Business Administration’s (SBA’s) lending programs. It has been allocated $349 billion and will accept applications through June 30 or until funds are exhausted. Small businesses were able to apply to the PPP as of last Friday April 3. Independent contractors and self-employed individuals may begin to apply this Friday.
The effort to neutralize regulatory capital effects on leverage and risk-based ratios for the loans, according to the interim rule, is consistent with the treatment the agencies are applying to financial institutions using the Fed’s money market mutual fund liquidity facility.
The agencies plan to take comments on the interim rule for 30 days.
Regulatory Capital Rule: Paycheck Protection Program Lending Facility and Paycheck Protection Program Loans