US Agencies (FDIC, FED, and OCC) announced an interim final rule to encourage lending to small businesses through the Small Business Administration's Paycheck Protection Program (PPP). The interim final rule modifies the agencies' capital rules to neutralize the regulatory capital effects of participating in the PPP liquidity facility because there is no credit or market risk in association with PPP loans pledged to the facility. The interim final rule also clarifies that a 0% risk-weight applies to loans covered by the PPP for capital purposes. The interim final rule is effective April 13, 2020. Comments on the interim final rule must be received no later than May 13, 2020. In addition, FED is temporarily revising the FR Y-9 family of reporting forms. FED also updated the FR Y-9C form and the associated supplemental instructions.
FED has temporarily revised the Financial Statements for Holding Companies (FR Y-9; OMB No. 7100-0128). The revisions are applicable only to reports reflecting the March 31, 2020 as-of date. FED is also inviting comment on a proposal to revise and extend the form for three years. Comments must be submitted by June 08, 2020. FED has temporarily revised the instructions to the FR-9C to allow holding companies to incorporate the effects of the Money Market Mutual Fund Liquidity Facility (MMLF) interim final rule, which was published on March 23, 2020; the revision is for the FR Y-9C submission reflecting the March 31, 2020 as-of date. The revised instructions reflect the exclusion of non-recourse exposures acquired under the MMLF from a holding company's total leverage exposure, average total consolidated assets, advanced approaches total risk-weighted assets, and standardized total risk-weighted assets, as applicable. Specifically, the revised instructions permit eligible holding companies to assign a zero percent risk-weight to exposures to the MMLF for purposes of determining the risk-weighted assets and leverage ratio. FED has determined that these temporary revisions to the FR Y-9C must be instituted quickly.
The interim final rule on PPP Liquidity (PPPL) Facility highlights that an eligible banking organization that participates in the PPPL Facility could potentially be subject to increased regulatory capital requirements. The agencies believe that the regulatory capital requirements for PPP covered loans pledged by a banking organization to a Federal Reserve Bank as part of the PPPL Facility do not reflect the substantial protections from risk provided to the banking organization by the facility. The agencies believe that it would be appropriate to exclude the effects of these pledged PPP covered loans from the regulatory capital of a banking organization. The interim final rule would permit banking organizations to exclude exposures pledged as collateral to the PPPL Facility from a banking organization's total leverage exposure, average total consolidated assets, advanced approaches total risk-weighted assets, and standardized total risk-weighted assets, as applicable.
FED took additional actions to provide up to USD 2.3 trillion in loans to support the economy. This funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the COVID-19 pandemic. The actions FED is taking to support the economy will:
- Bolster the effectiveness of the PPP by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses. The PPP Liquidity (PPPL) Facility will extend credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.
- Ensure credit flows to small and mid-size businesses with the purchase of up to USD 600 billion in loans through the Main Street Lending Program. The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) will provide USD 75 billion in equity to the facility.
- Increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF), as well as the Term Asset-Backed Securities Loan Facility (TALF).
- Help state and local governments manage cash flow stresses caused by the COVID-19 pandemic by establishing a Municipal Liquidity Facility. The Treasury will provide USD 35 billion of credit protection to the FED for the Municipal Liquidity Facility, using funds appropriated by the CARES Act.
- Press Release on Rule for PPPL Facility
- Interim Final Rule
- Federal Register Notice on FR Y-9
- Reporting Form and Instructions for FR Y-9C
- Supplemental Information for FR Y-9C
- Press Release on Additional Actions by FED
Comment Due Date: May 13, 2020/June 08, 2020
Effective Date: April 13, 2020
Keywords: Americas, US, Banking, Reporting, Regulatory Capital, MMLF, FR Y-9C, Credit Risk, Market Risk, COVID-19, Paycheck Protection Program, Liquidity Facility, US Agencies
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