Fed Officials Provide Additional Clarity on Paycheck Protection Program Liquidity Facility 

With the Federal Reserve’s Paycheck Protection Program Liquidity Facility now up and running, officials from the Fed today shared additional details on the program and answered questions during a teleconference with American Bankers Association banker leadership. The PPPLF offers non-recourse loans to institutions eligible to make PPP loans, with the SBA-guaranteed loans pledged as collateral to the Federal Reserve Banks.

One question addressed the borrower certification—required for any Section 13(3) facility—that the participating bank is not insolvent and that it cannot obtain adequate credit accommodation from other sources. Fed officials clarified that this requirement is “not meant to prevent usage of this facility” and that banks “can rely on the fact that the Federal Reserve established this facility as an indication that, without using it, you would not have adequate credit accommodation.”

In addition to receiving advances through the PPPLF, banks can choose to pledge PPP loans to the discount window, Fed officials noted, highlighting several distinctions between the two. For example, advances made under the PPPLF have a fixed interest rate of 35 basis points, with the extension of credit matching the life of the underlying loan, while discount window advances made under the primary credit program have a variable interest rate—currently set at 25 basis points—and credit is extended for 90 days. They added that PPP loans pledged to the PPPLF may be excluded from leverage ratio calculations, as codified by an interim final rule issued by the federal banking agencies earlier this month.

Finally, Fed staffers said that they plan to refine and update PPPLF FAQs as new questions arise from participating depository institutions. Questions on the PPPLF may be submitted to [email protected]