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Financial Institution Letter

Changes to the Regulatory Capital Rule to Accommodate the Paycheck Protection Program

April 9, 2020  |  FIL-37-2020

Summary:

The Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System (Federal Reserve), and Office of the Comptroller of the Currency (together, the agencies) issued an interim final rule on April 7, 2020, that allows banking organizations to neutralize the regulatory capital effects of participating in the Federal Reserve's Paycheck Protection Program Lending Facility (PPPL Facility). Through the PPPL Facility, each of the Federal Reserve Banks will extend non-recourse loans to eligible lenders, including depository institutions, to fund loans under the Paycheck Protection Program.

Statement of Applicability: The interim final rule is applicable to all FDIC-supervised institutions.

Highlights:

  • In order to provide liquidity to small business lenders and the broader credit markets, and to help stabilize the financial system, the Federal Reserve authorized the Federal Reserve Banks to establish the PPPL Facility.
  • Through the PPPL Facility, each of the Federal Reserve Banks will extend non-recourse loans to eligible lenders, including depository institutions, to fund loans under the Paycheck Protection Program.
  • Under the Paycheck Protection Program, the Small Business Administration guarantees certain loans made by eligible lenders to small businesses, as provided by the Coronavirus Aid, Relief, and Economic Security Act.
  • To support the use of the PPPL Facility, the agencies are allowing banking organizations to exclude loans 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.
  • In addition, loans made under the Payment Protection Program receive a zero percent risk weight under the agencies' regulatory capital rules regardless of whether they are pledged as collateral to the PPPL Facility. However, such loans will be included in a banking organization's leverage ratio requirement unless they are pledged as collateral to the PPPL Facility.
  • The interim final rule is effective as of the date of Federal Register publication. Comments will be accepted for 30 days after publication in the Federal Register.

Suggested Distribution:

FDIC-Supervised Institutions

Suggested Routing:

Chief Executive Officer
Chief Financial Officer
Chief Risk Officer

Related Topics:

Risk-Based Capital Rules, 12 CFR Part 324

Attachments:

Paper copies of FDIC FILs may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).