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The Federal Reserve Provides Liquidity to Banks Participating in the Paycheck Protection Program

On April 9, 2020, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued guidance for banks that wish to participate in the Federal Reserve’s Paycheck Protection Program Lending Facility (the “PPPL Facility”). Under the PPPL Facility, the Federal Reserve Banks will extend funding, on a non-recourse basis, to banks participating in the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (the “SBA”), taking PPP loans originated under the PPP as collateral. Below is a high level summary of the PPPL Facility and capital treatment for all PPPL Facility loans.

Terms of the PPPL Facility

Eligible Borrowers

All banks and savings institutions originating PPP loans.

Ineligible Borrowers

Non-bank SBA-approved lenders may not participate in the PPPL Facility at this time; however, the Federal Reserve has indicated that it is working to expand eligibility to other lenders originating PPP loans in the near future.

Principal Amount

The principal amount of any extension of credit under the PPPL Facility will be equal to the principal amount of the PPP loans pledged as collateral.

Interest Rate



PPP loans guaranteed by the SBA, with the value of such collateral equal to the principal amount of such loans.


The maturity date equals the maturity date of the PPP loans pledged as collateral.


The maturity date will be accelerated if the underlying PPP loan goes into default andthe bank sells the PPP loan to the SBA to realize on the SBA guarantee.

The maturity date will also be accelerated to the extent of any loan forgiveness reimbursement received by the bank from the SBA.




Extensions of credit under the PPPL Facility are non-recourse.

PPPL Facility Termination Date

The PPPL Facility will terminate on September 30, 2020, unless extended by the Federal Reserve and Department of Treasury.

Regulatory Capital Treatment of PPP Loans

On April 9, 2020, the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (collectively, the “federal banking agencies”) issued an interim final rule (the “Interim Rule”) that permits banks to neutralize the regulatory capital effects of participating in the PPPL Facility. Specifically, banks can expect the following regulatory capital treatment for PPP loans:

  • banks may exclude from its regulatory capital ratios (i.e., total leverage exposure, average total consolidated assets, advanced approaches total risk-weighted assets and standardized total risk-weighted assets) all PPP loans pledged as collateral to the PPPL Facility; and

  • PPP loans originated will 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; provided, PPP loans will be included in a banks 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 PPPL Facility – Term Sheet.

Click here to read the full Interim Rule (capital treatment).

© 2023 Vedder PriceNational Law Review, Volume X, Number 102

About this Author

David L. Kane Insolvency, Bankruptcy & Corporate Reorganization Vedder Price Chicago, IL

David L. Kane is a Shareholder in the Chicago office of Vedder Price and a member of the firm’s Insolvency, Bankruptcy & Corporate Reorganization practice group.

Mr. Kane brings over 16 years of experience in almost every facet of complex bankruptcy and insolvency proceedings, including cash collateral and debtor-in-possession financing, Section 363 sale transactions, real estate and equipment leasing disputes, and claims administration, as well as preference, fraudulent transfer and the prosecution and defense of bankruptcy adversary litigation. His clients include a cross...

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Daniel C. McKay, Vedder Price Law Firm, Financial Attorney

Daniel C. McKay, II concentrates his practice in the representation of financial institutions and corporations and their officers, directors and shareholders in connection with mergers and acquisitions, securities offerings, corporate finance, corporate governance and regulatory and compliance matters.  He has been involved in more than 150 bank or thrift  mergers and acquisitions/securities offerings, with aggregate consideration of these deals totaling over $50 billion.

James W. Morrissey, Vedder Price Law Firm, Finance Attorney

James W. Morrissey is a shareholder and a member of the firm’s Financial Institutions Group and Finance and Transactions Group.


Jennifer King, corporate, capital markets, securities, attorney, Vedder Price,

Jennifer Durham King joined Vedder Price’s Chicago office in 1997 as a member of the firm’s Corporate and Capital Markets practice areas. She concentrates her practice in capital markets and corporate securities transactions, with a specific focus on financial institutions. Ms. King regularly represents issuers and underwriters in a broad range of capital markets transactions, including public and private debt and equity offerings, trust preferred offerings, mergers and acquisitions, and capital planning and formation.

Juan M. Arciniegas, Vedder Price, derivatives, structured products and futures

Juan M. Arciniegas is a Shareholder at Vedder Price and a member of the Investment Services group in the firm’s Chicago office.

Mr. Arciniegas works primarily as a derivatives lawyer and has significant experience in the market for over-the-counter (OTC) derivatives, structured products and futures. He advises on every stage throughout the life cycle of a derivatives transaction, from conducting pre-trade regulatory due diligence to negotiating transactional documentation and advising on post-trade reporting and recordkeeping obligations. This...