Fed to Create Lending Facility for PPP; Agencies Provide Regulatory Capital Relief

As reported earlier this week, the Federal Reserve is creating a lending facility for banks providing loans under the Paycheck Protection Program. Through the Paycheck Protection Program Lending Facility, the Federal Reserve Banks will extend non-recourse loans to institutions eligible to make PPP loans. PPP loans guaranteed by the SBA that are originated by eligible banks may be pledged as collateral to the Federal Reserve Banks. 

In addition, to help banks make use of the new facility, the federal banking agencies are issuing an interim final rule that will allow institutions to neutralize the regulatory capital effects—with respect to leverage and risk-based ratios—of loans pledged to the PPPL facility. The relief is consistent with the treatment the agencies are applying to banks using the Fed’s money market mutual fund liquidity facility. 

The FDIC approved the interim final rule in a notational vote yesterday, and the other agencies are expected to follow suit shortly. The agencies will accept comments on the interim final rule for 30 days after publication in the Federal Register