Fed Makes Temporary Rule Change to Facilitate PPP Loans to Bank Directors, Shareholders

Following clarification from the Small Business Administration and Treasury Department that bank directors and shareholders may receive Paycheck Protection Program loans from their related banks, the Federal Reserve on Friday said that it would provide a temporary exemption from Regulation O for these loans. Reg O generally limits lending activity to bank directors, shareholders, officers and businesses owned by these persons.

The exception—which applies only to PPP loans—takes effect immediately. The Fed added that any PPP loans extended to bank directors and shareholders must conform to SBA’s recent guidance, which states that the eligible business must follow the same process as any similarly situated customer or account holder and must not receive favoritism from the bank.