April 9, 2020
Fed Announces “Main Street Lending Program”
On April 9, 2020, the Federal Reserve announced it will provide funding for the “Main Street Lending Program” by purchasing up to $600 billion in loans to small and mid-sized businesses. This program is intended to support businesses that were in good financial standing prior to the COVID-19 crisis by providing 4-year loans to companies with up to 10,000 employees or with revenues of less than $2.5 billion.
Key terms announced by the Federal Reserve include:
Main Street loans may be for originating new loans or add to a qualifying existing loan.
Comments on implementing the Main Street Lending Program may be made until April 16, 2020.
Regulators Relax PPP Loan Capital Rules
In a related development, bank regulators issued a joint press release announcing a new interim final rule to further encourage lending by financial institutions to small businesses through the Paycheck Protection Program (PPP) by modifying regulatory capital guidelines. By way of background, banks are subject to capital requirements that are expressed as a ratio of regulatory capital to assets including other risk exposures. “Risk-based” capital requirements are based on risk-weighted assets; “leverage” capital requirements are based on a measure of average total consolidated assets or total leverage exposure.
The interim final rule confirms that a zero percent risk weight applies to PPP loans for regulatory capital purposes. In addition, the rule provides that PPP loans pledged as collateral to the PPP Liquidity Facility can be excluded from assets used to compute a bank’s leverage and risk-weighted capital ratios.
More information can be found on the Paycheck Protection Program Lending Facility Term Sheet.
Related: Bank Capital Buffer Requirements Relaxed in Response to Coronavirus
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