04-10-2020 | Blogs, Business Transactions, BW News

Federal Bank Regulators Issue New Guidance on Paycheck Protection Program Facility

By: Ellen Hames


Federal Reserve Sign

 

Type of Action: Interim Final Rule

Issued By: Department of Treasury Office of Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System (“Board”), and the Federal Deposit Insurance Corporation (“FDIC”).

Date issued: April 9, 2020

To provide a bit of background – on April 7, 2020 the Board authorized Federal Reserve Banks to extend credit under the Paycheck Protection Program Lending Facility (the “PPPL Facility”), pursuant to Section 13(3) of the Federal Reserve Act. Under the PPPL Facility, only Paycheck Protection Program (“PPP”) covered loans guaranteed by the SBA with respect to both principal and interest that are originated by an eligible institution may be pledged as collateral to the Federal Reserve Banks.

On April 9, 2020 the three agencies listed above issued interim guidance modifying the agencies’ standard regulatory capital requirements on banking institutions, so that the regulatory capital effects of participating in the Federal Reserve Bank’s PPPL Facility are neutralized. The justification for this is that there is no credit or market risk in association with PPP loans pledged to the PPPL Facility. This applies to both risk-based and leverage capital ratios, including the community bank leverage ratio. This relief will encourage banks to lend to businesses through the Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

In addition, the Interim Final Rule confirms the CARES Act requirement that a zero percent risk weight applies to loans covered by PPP for capital purposes.

Click here to read the full document from the FDIC. This Interim Final Rule takes immediate effect, though comments will be accepted for 30 days after publication of the Interim Final Rule in the Federal Register. Please reach out to any BrownWinick attorney with questions on the guidance or if you would like to submit formal comments.

For updates on COVID-19 and new guidance provided by BrownWinick attorneys, please visit our COVID-19 Resource Page.