Participating Credit Unions Should Get PPP Capital Relief

April 10, 2020 at 10:58 am 1 comment

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.

I hope I’m wrong. For as long as I’ve been here I’ve heard credit unions consistently argue that they should be allowed to make more small business loans. Now they have the opportunity to participate in a way that directly helps their membership in their time of greatest need. I’ve said it before people and I’ll say it again, if not now, when? If not you, then whom?

On that note, enjoy your social distance holiday weekend. I will be spending my weekend watching replays of old Masters golf tournaments just to get my sports fix. I won’t tell my kids that I know who won so they think I’m a sports genius.

Entry filed under: Compliance, Regulatory. Tags: , , , .

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1 Comment Add your own

  • 1. Michael Mattone  |  April 10, 2020 at 4:37 pm

    Tiger’s chip on 16 from 2005 has been on loop today! Great insight as always and hopefully NCUA acts quickly on this so that Credit Unions can continue to fulfill their role as Financial First Responders for their members.

    Reply

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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