The Federal Reserve continues to increase its unprecedented intervention into the American economy. Yesterday, it issued joint regulations with the Treasury and the FDIC permitting the Federal Reserve Banks to accept Paycheck Protection Program loans as collateral for short term loans to financial institutions. What’s more, the FDIC decided that these loans would not negatively impact either a bank’s Risk Based Capital requirements or their leveraged capital requirements. There are a couple of lessons in this action for the NCUA.
Most importantly, if the FDIC feels it has the authority to waive the negative impact on capital requirements for banks making PPP loans, then NCUA should consider extending similar treatment to credit unions making these loans to their local businesses. After all, federal law gives the NCUA the responsibility to develop a regulatory framework similar to that imposed on banks while taking the unique cooperative structure of credit unions into account.
In explaining why PPP loans should be exempt from negative capital treatment, the regulators noted “PPP lenders are not held liable for any representations made by PPP borrowers in connection with a borrower’s request for a PPP loan.” According to a SBA conference call earlier this week (I don’t know about you, but the days are all coming together for me) there had only been a little more than 300 new financial lenders signing up to participate in the PPP program. I’m going to assume that the vast majority of these new lenders are community banks.
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