April 8, 2020
By: Caity Witucki
Contributing Editor, C-Suite Wednesday
C-Suite Wednesday – Federal Reserve Announces Plan to Ease PPP Lending Conditions
On Monday, April 6, 2020, around 2:00 PM Eastern, the Federal Reserve announced its intent to support the new Paycheck Protection Program (PPP) by making it easier for banks to lend to smaller companies.
“To facilitate lending to small businesses via the Small Business Administration’s Paycheck Protection Program (PPP), the Federal Reserve will establish a facility to provide term financing backed by PPP loans,” the Federal Reserve’s board of governors said in an official statement. “Additional details will be announced this week.”
The Federal Reserve’s announcement comes amid concern over the ability of U.S. banks and lending institutions to handle the massive surge in loan applications. Bank of America has seen applications from 177,000 small businesses that account for $32.6 billion and Wells Fargo has already received enough applications to exceed its lending capacity.
“Nearly 3,000 lenders have already made loans under the program and we’re signing up additional lenders very quickly,” President Trump said in a Coronavirus Task Force Briefing Monday evening. “Community banks have been very responsive and larger banks are also stepping up.” However, additional lending institutions are needed to address the high demand.
The Federal Reserve’s proposed initiative is intended to incentivize more lenders to participate in the new loan program. As a result, more community banks and smaller lending institutions could shoulder some of the demand and get money onto main street faster.
Although the Federal Reserve has not released details on how the new facility will operate, The New York Times has speculated that the initiative could result in banks making Paycheck Protection Program loans directly or the Federal Reserve buying loans after origination.
The Federal Reserve is currently collaborating with the Treasury Department to address the concerns raised by lenders trying to participate in the program. More information about the Federal Reserve’s facility and initiative are expected later this week.