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Changes to regulatory capital reporting in response to the PPP

Apr 14, 2020

FIL-37-2020, issued April 9, 2020, outlines interim rules related to regulatory reporting for banks that are participating in the Paycheck Protection Program (PPP).

Highlights of the interim rule effective for the June 30, 2020 Call Report:

  • To provide liquidity to banks participating in the PPP program, the Federal Reserve Banks are authorized to extend non-recourse Paycheck Protection Program Lending (PPPL) loans to eligible lenders to fund the loan under the PPP.
  • Banks will be able to pledge PPP loans to the Federal Reserve Bank as collateral.
  • To minimize the impact on regulatory capital the following rules will apply:
    • The amount of PPP loans pledged to the Federal Reserve Bank under the PPPL program can be excluded from average total consolidated assets.
    • PPP loans that are not pledged as collateral with the Federal Reserve Bank should continue to be included in average total consolidated assets.
    • For banks calculating risk-based capital ratios, the PPP loans can be risk weighted at 0% regardless of whether they are pledged as collateral or not.

We understand the interim rule will potentially affect Form 051 Call Report items. We expect to have more details related to this call reporting once the new instructions and forms are received.

To accurately report the PPP loans and PPPL consider the following:

  • PPPL information related to the loans pledged, amount borrowed and maturity of borrowings should be available from the Federal Reserve Bank. An existing “other borrowing” general ledger account can be used or a new account called Federal Reserve Borrowings that separates these loans from FHLB borrowings should be created.
  • Options for tracking PPP loans:
    • Based on the bank’s volume and the expected maturity, consider creating a PPP loan type code and establishing asset and income general ledger accounts. This will be particularly helpful if your Call Report is mapped and you are calculating risk-based capital. You can map the entire general ledger balance to RC-C, item 4 and RC-R, Part II.
    • If creating a new loan type and general ledger interface is not possible or practical, consider using a user defined field available in the core system to flag PPP loans. The user defined field is added when the loan is entered into the core system. A query can be generated to provide a list and total amount of PPP loans. Since these loans are unsecured business purpose loans, they should be assigned a loan type code that will be reported at RC-C, item 4 – Commercial and industrial loans.
    • If options to use your core system to identify and query loans is not available, a manual spreadsheet can be used to track PPP loans.

The PPP lending process and roll out is unprecedented. The financial industry is deep in uncharted waters and the rules of engagement are changing daily. The challenge of processing these loans in the current environment is putting a significant strain on reduced staff or staff that are working remotely.  Unfortunately, there will be the need to accumulate this data for reporting, both internally and externally.

Begin with the end in mind and think about the best way to generate information you may need related to these loans.

While it is difficult, investing the time on the front end to create the data in a format that is usable will save you significant time reporting in the months to come.

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Danielle M. Heidemann, CIA
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