FDIC proposes removing PPP loans from premium formula

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

The FDIC said banks making small-business loans through the PPP — or participating in the Federal Reserve's Paycheck Protection Program Lending Facility or Money Market Mutual Fund Liquidity Facility — could potentially trigger risk measures that the FDIC uses to calculate assessments without further action.

The proposal would exclude PPP loans from a bank's portfolio for the purposes of calculating premiums, loans pledged to the Paycheck Protection liquidity facility from an institution's asset total, and other borrowings tied to the facility from total liabilities.

In addition, loans pledged to the Paycheck liquidity facility and assets purchased under the Money Market Fund facility would be excluded from the formula used to determine certain adjustments in a bank's premium. The proposal would provide an offset for the increase in a bank's assessment base resulting from participation in the facilities.

“The FDIC’s action today will ensure that banks will not be subject to significantly higher deposit insurance assessments for participating in these programs,” the FDIC said.
“The FDIC’s action today will ensure that banks will not be subject to significantly higher deposit insurance assessments for participating in these programs,” the FDIC said.

“PPP loans are fully guaranteed by the SBA, and transactions made with the PPPLF and MMLF are conducted with the Federal Reserve on a non-recourse basis,” the FDIC said in a press release. “The FDIC’s action today will ensure that banks will not be subject to significantly higher deposit insurance assessments for participating in these programs.”

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

Comments on the FDIC’s notice of proposed rulemaking will be due seven days after it is published in the Federal Register. The agency said the rule would go into effect June 30 but would be retroactive to April 1.

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FDIC Coronavirus Paycheck Protection Program SBA FFIEC Deposit insurance
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