FED announced that it has expanded access to the Paycheck Protection Program Liquidity Facility, also known as PPPLF, and expanded the collateral that can be pledged. On April 09, 2020, certain US agencies, including FED, had issued an interim final rule to allow banking organizations to neutralize the effect of PPP loans financed under the liquidity facility. Under section 1102 of the CARES Act, a PPP Loan will be assigned a risk-weight of zero percent under the risk-based capital rules of the federal banking agencies. FED also announced expansion to the scope and eligibility for the Main Street Lending Program, which was developed to help credit flow to small and medium-size businesses that were in sound financial condition before the pandemic.
The recent expansion of access to PPPLF will facilitate lending to small businesses via the Paycheck Protection Program (PPP) of the Small Business Administration (SBA). As a result of the changes, all PPP lenders approved by SBA, including non-depository institution lenders, are now eligible to participate in this liquidity facility. SBA-qualified PPP lenders include banks, credit unions, Community Development Financial Institutions, members of the Farm Credit System, small business lending companies licensed by the SBA, and some financial technology firms. When the PPPLF was announced, FED said the facility would immediately lend to depository institutions and that non-depository institutions would be added as soon as possible.
Additionally, eligible borrowers will be able to pledge whole PPP loans that they have purchased as collateral to the PPPLF. An institution that pledges a purchased PPP loan will need to provide FED with documentation from the SBA demonstrating that the pledging institution is the beneficiary of the SBA guarantee for the loan. The SBA's PPP guarantees loans from qualified lenders to small businesses so that those businesses can keep workers employed. The PPPLF supports the PPP by extending credit to financial institutions that make or purchase PPP loans, using the loans as collateral. The additional liquidity from the PPPLF increases the capacity of financial institutions to make additional PPP loans.
Moreover, as part of the expansion to the scope and eligibility for the Main Street Lending Program, FED decided to expand the loan options available to businesses and increased the maximum size of businesses that are eligible for support under the program. The changes include:
- Creating a third loan option, with increased risk-sharing by lenders for borrowers with greater leverage
- Lowering the minimum loan size for certain loans to USD 500,000
- Expanding the pool of businesses eligible to borrow
- Press Release on Liquidity Facility
- PPPL Facility Term Sheet (PDF)
- Rule on Capital Treatment of PPP Loans
- Press Release on Main Street Lending Program
Keywords: Americas, US, Banking, COVID-19, Regulatory Capital, Paycheck Protection Program, Credit Risk, CARES Act, FED
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