To encourage more banks to participate in the Paycheck Protection Program, the three federal bank regulators have modified their capital rules to encourage banks to use a Federal Reserve lending facility. The Federal Reserve also took steps to provide more loans to support the economy.
In an interim final rule issued April 9, the FDIC, OCC and Federal Reserve said they had modified their capital rules to encourage banks to participate in the Paycheck Protection Program Lending Facility.
The PPP Lending Facility extends loans to lending institutions from the Federal Reserve banks, allowing ongoing funding of the U.S. Small Business Administration PPP loans created under the CARES Act to support small businesses affected by the coronavirus crisis.
The interim final rule issued by the bank regulators said that banks will now be able to exclude from their total leverage exposure any PPP loans pledged as collateral to the lending facility. All PPP loans will also receive a zero weight risk for regulatory capital purposes.
PPP loans that are not pledged as collateral to the PPP lending facility will, however, be included in a bank’s leverage ratio requirement.
The Fed had previously indicated it would buy PPP loans from banks.
The Federal Reserve is also taking additional steps to provide up to $2.3 trillion in loans to support the economy. The money will target American households and businesses, as well as local governments besieged by the coronavirus outbreak.
The Fed said Thursday that it is activating a “Main Street Business Lending Program” authorized by the CARES Act, the largest economic relief package ever passed by Congress.
Federal Reserve Chairman Jerome Powell said the Fed’s role was to “provide as much relief and stability as we can during this period of constrained economic activity.”
In addition, the Fed activated a loan program for municipal governments, as well as additional support for the Paycheck Protection Program, which the Small Business Administration rolled out last week. The program provides loans to businesses with fewer than 500 employees.
The Main Street lending program “will make a significant difference for the 40,000 medium-sized business that employ 35 million Americans,” Treasury Secretary Steven Mnuchin said.
Material from the Associated Press was used in this report.
