FED is temporarily modifying its rules with respect to the Paycheck Protection Program (PPP) to extend the date for allowing certain bank directors and shareholders to apply to their banks for PPP loans for their small businesses. FED, in April 2020 and July 2020, had issued two interim final rules to except such loans made through June 30, 2020 and August 8, 2020, respectively, from the existing requirements of section 22(h) of the Federal Reserve Act and FED's Regulation O. FED is now issuing this interim final rule to further extend this relief to PPP loans, including PPP second-draw loans, made through March 31, 2021. The rule change will be effective on the date of publication in the Federal Register while comments will be accepted for 45 days after its publication in the Federal Register.
This is the second FED-announced extension of the rule to bolster the effectiveness of the Paycheck Protection Program of SBA. Like the earlier extensions, this one will temporarily modify the FED rules so that certain bank directors and shareholders can apply to their banks for PPP loans for their small businesses. To prevent favoritism, FED limits the types and quantity of loans that bank directors, shareholders, officers, and businesses owned by these persons can receive from their affiliated banks. However, these limits have prevented some small business owners from accessing PPP loans—especially in rural areas. SBA had clarified last year that PPP lenders can make PPP loans to businesses owned by their directors and certain shareholders, subject to certain limits, and without favoritism. This rule extension will allow those individuals to apply for PPP loans, consistent with the rules and restrictions of SBA. The extension only applies to PPP loans. SBA has explicitly prohibited banks from prioritizing or providing favorable processing time to PPP loan applications from a director or equity holder and FED will administer the rule extension accordingly.
Comment Due Date: FR + 45 Days
Effective Date: Date of Publication in FR
Keywords: Americas, US, Banking, COVID-19, Paycheck Protection Program, Small Business Administration, Credit Risk, Loan Guarantee, Regulatory Capital, Basel, FED
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