FDIC suggests removing PPP loans from the premium formula

0

WASHINGTON – The Federal Deposit Insurance Corp. on Tuesday proposed steps to ensure banks participating in the Paycheck Protection Program and other coronavirus relief programs are not faced with higher deposit insurance premiums as a result.

The FDIC said banks that lend to small businesses through the PPP – or participate in the Paycheck Protection Credit Facility or the Federal Reserve’s Money Market Fund Liquidity Facility – could potentially trigger risk measures that the FDIC uses to compose valuations without further ado Calculate measures.

The proposal would exclude PPP loans from a bank’s portfolio for premium calculation purposes, loans pledged to the paycheck liquidity facility from an institution’s total assets, and other facility-linked loans from total liabilities.

In addition, loans pledged to the paycheck liquidity facility and assets acquired under the money market fund facility would be excluded from the formula used to determine certain adjustments to a bank’s premium. The proposal would offset the increase in a bank’s tax base due to participation in the facilities.

“The FDIC’s actions today will ensure that banks are not subject to significantly higher deposit insurance ratings to participate in these programs,” the FDIC said.

Bloomberg news

“PPP loans are fully guaranteed by the SBA, and transactions with the PPPLF and MMLF are free of recourse with the Federal Reserve,” the FDIC said in a press release. “The FDIC’s actions today will ensure that banks are not subject to significantly higher deposit insurance ratings to participate in these programs.”

The FDIC said the proposed changes would likely require additional adjustments to banks’ reporting requirements through call reporting and other typical information exchanges between financial institutions and their regulators.

Comments on the FDIC’s notification of the proposed regulation are due seven days after their publication in the federal register. The agency said the rule would go into effect June 30, but retrospectively as of April 1.

Share.

Leave A Reply