On April 9, 2020, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), and the Office of the Comptroller of the Currency (collectively, the “federal banking agencies”) issued an interim rule that permits banks to neutralize the regulatory capital effects of participating in the Federal Reserve’s Paycheck Protection Program Lending Facility (the “PPPL Facility”).

• Under the PPPL Facility, the Federal Reserve Banks will extend non-recourse loans to banks at an interest rate of 0.35%. The Federal Reserve loans will be secured by the Paycheck Protection Program (“PPP”) loans originated by the banks.

• To support the use of the PPPL Facility, the federal banking agencies are allowing banking organizations to exclude loans pledged as collateral to the PPPL Facility from a banking organization’s regulatory capital ratios (i.e., total leverage exposure, average total consolidated assets, advanced approaches total risk-weighted assets and standardized total risk-weighted assets).

• Importantly, loans made under the PPP receive a zero percent risk weight under the federal banking 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 Rule is effective immediately upon its publication in the Federal Register, although comments will be accepted for 30 days after publication.

Click here to read the full Interim Rule.