The National Credit Union Administration (NCUA) Board unanimously approved on April 22, 2020, by notation vote, an interim final rule that amends the agency’s capital adequacy and member business loans and commercial lending regulations following the creation of the Small Business Administration’s Paycheck Protection Program (PPP).
The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the PPP to help certain businesses affected by the COVID-19 pandemic. The CARES Act requires that PPP loans receive a zero-percent risk weighting under the NCUA’s risk-based capital requirements. To reflect this statutory requirement, the interim final rule amends the NCUA’s capital adequacy regulation so that covered PPP loans receive a zero-percent risk weight in the agency’s risk-based net worth requirements.
Additionally, if a loan is pledged as collateral for a non-recourse loan provided through the Federal Reserve System’s PPP Lending Facility, the covered loan can be excluded from a credit union’s calculation of total assets for the purposes of calculating its net worth ratio. This ensures that credit unions can neutralize the regulatory capital effects of PPP loans pledged to the facility.
The interim final rule also makes a conforming change to the definition of a commercial loan in the NCUA’s member business loans and commercial lending rule. Under the rule, PPP loans are excluded from the definition of a commercial loan because the unique nature of these loans mitigates the need for enhanced commercial underwriting.
Read the interim final rule.
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