Define the liquidity facility of the Paycheck Protection Program (PPLF)

What is the Paycheck Protection Program (PPPLF) liquidity facility?

The Paycheck Protection Program (PPPLF) liquidity facility was established on April 9, 2020 to bolster a key component of the $ 2 trillion stimulus bill adopted in March 2020. Specifically, the PPPLF has loaned money to commercial lenders who in turn have loaned money to small businesses through the Paycheque Protection Program (PPP).

The banks that gave loans to small businesses then gave those loans as collateral for the loans they got from the Fed. The intention was to help small businesses, a major generator of jobs, get loans quickly to maintain their payrolls in the face of business disruptions from the coronavirus pandemic. The liquidity facility was a joint initiative of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).

On April 30, 2020, the program was expanded. According to the Federal Reserve, “All SBA-approved PPP lenders, including non-depository institutional lenders, are now eligible to participate in the PPPLF. SBA-qualified PPP lenders include banks, credit unions, community development finance institutions, members of the Farm Credit System, SBA-licensed small business loan companies, and some financial technology companies. He also accepted PPP loans that a lender bought as collateral, not just those they issued.

PPP and PPPLF were among many government initiatives around the world that were designed to support the global economy, including the United States Coronavirus Aid, Relief and Economic Security Act (CARES) as well as the follow-up of President Biden, the American Rescue Plan Act of 2021.

Key points to remember

  • Under the PPPLF, the Fed loaned money to lending institutions that loaned money to small businesses under the PPP.
  • The banks pledged the PPP loans to small businesses as collateral for the loans granted to them by the Fed.
  • The purpose of the program was to provide loans to small businesses to avoid layoffs.
  • The program ended on July 30, 2021

Understand the liquidity ease of the Paycheck Protection Program (PPPLF)

The PPPLF was designed to encourage banks and other lenders to extend loans to small businesses through the Paycheck Protection Program (PPP) of the Small business management (SBA). Small businesses said the program got off to a difficult start, plagued by delays and confusion. To address this, federal regulators also announced on April 9 a major interim rule to encourage lending. After this announcement, the program provided liquidity to lenders while neutralizing the effects on their regulatory capital requirements. The interim rule also clarified that a “zero percent risk weight applies to PPP loans for capital purposes,” according to a Fed statement.

Thanks to the liquidity facility of the Paycheck Protection Program, the Fed has extended without recourse loans to financial institutions eligible to finance loans guaranteed by the Small Business Administration. The Fed, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) all agreed that PPPLF loans to financial institutions would not increase regulatory capital requirements for these institutions. .

The rationale for PPP and PPPL was summed up in the Federal Register Notice filed jointly by the Fed, FDIC, and OCC: The revenue streams of many small businesses collapsed, resulting in severe financial constraints. liquidity in small businesses and is forcing many small businesses to temporarily close or put their employees on leave.

Loans made by financial institutions under the PPP were considered risk-free under regulatory capital rules because the SBA guarantees payment of principal and interest to these lenders.

On June 5, 2020, the Federal Reserve declared that participation in the PPPLF would not affect the liquidity coverage ratio of participating banks.

The program ceased granting new loans on July 30, 2021.

About Paul Cox

Check Also

Orestone Mining Increases Private Placement Funding to $ 1.4 Million

Vancouver, British Columbia – (Newsfile Corp. – March 1, 2021) – Orestone Mining Corp. (TSXV: …

Leave a Reply

Your email address will not be published.