April 15, 2020
By: Caity Witucki
Contributing Editor, C-Suite Wednesday
C-Suite Wednesday – Federal Banking Agencies Issue Interim Final Rule for PPP Facility
Last Thursday, the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (collectively known as the “federal banking agencies”) issued an interim final rule that permits banks to neutralize regulatory capital effects by participating in a Paycheck Protection Program Lending Facility (PPPL Facility).
Under the PPPL Facility, each Federal Reserve Bank will extend non-recourse loans to institutions that are eligible to make PPP covered loans, including depository institutions subject to the agencies’ capital rules. However, only loans that are guaranteed by the SBA under the Paycheck Protection Program with respect to both principal and interest may be pledged as collateral to the Federal Reserve Banks.
“The interim final rule modifies the agencies’ capital rules to neutralize the regulatory capital effects of participating in the Federal Reserve’s PPP facility because there is no credit or market risk in association with PPP loans pledged to the facility,” says the official press release. “Consistent with the agencies’ current capital rules and the CARES Act requirements, the interim final rule also clarifies that a zero percent risk weight applies to loans covered by the PPP for capital purposes.”
The Interim Rule is effective immediately upon its publication in the Federal Register, although comments will be accepted for 30 days after publication. Banks and lending institutions are encouraged to submit their comments through the Federal eRulemaking Portal or email. Please use the title “Regulatory Capital Rule: Paycheck Protection Program Lending Facility and Paycheck Protection Program Loans” to facilitate the organization and distribution of the comments.