US banks call for term changes as Fed finalizes Main Street loan program

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WASHINGTON (Reuters) – US banks are pushing the Federal Reserve to change the terms of a $ 600 billion loan program for small and medium-sized businesses, including reducing the minimum loan size and allowing more flexibility Underlying benchmark rates, said industry groups.

FILE PHOTO: The seal of the Federal Reserve is seen at the press conference of President Jerome Powell following the two-day meeting of the Federal Open Market Committee (FOMC) on interest rate policy in Washington, United States, January 29, 2020. REUTERS / Yuri Gripas

Washington-based banking groups have been reporting to the Fed over the past few days on the terms of the Main Street loan program, which is designed to help lessen the economic impact of the coronavirus epidemic. The program was released on April 9 and is expected to launch in the coming weeks.

Under this program, banks will provide loans to eligible small and medium-sized businesses and the Fed will then purchase 95% of the loan via a special-purpose vehicle. The Fed asked for the public’s opinion and said it could change the conditions if necessary.

Making the program workable for lenders is essential if federal funds are to be quickly integrated into the real economy, but the conditions of this program and other assistance programs are increasingly under review as conditions are insufficient for borrowers and banks can distribute the funds unevenly.

Reuters reported on Friday that some funds from a separate program to cover the wage bill for small businesses appeared to have gone to certain states and businesses that needed less money.

Industry groups, including the Independent Community Bankers of America (ICBA), the Consumer Bankers Association (CBA) and the American Bankers Association (ABA), told the Fed this week that the minimum loan size a million dollars from the program was too large and would exclude many small businesses. who need to borrow a lower amount.

“The minimum loan amount should not exceed $ 100,000. Otherwise, Main Street community businesses and banks will not participate, “the ICBA wrote in a letter on Friday.

The ABA said in its letter published on Saturday that the floor should be $ 50,000.

The Fed has said that banks must assess loans using the overnight secure rate (SOFR), a new benchmark that is expected to replace the London interbank rate (Libor) next year. But some lenders want to use Libor or other referrals because many have not yet adopted SOFR, the ABA said.

The ICBA also stated that requiring lenders to keep a 5% interest in the loan would not make lenders more cautious when taking out the loan, but it would complicate the sale of the loan and the accounting treatment of the loan. transaction.

Other industry demands include greater flexibility over the duration of loans made and the maximum loan size, as well as giving lenders more discretion on how to enforce capital allocation restrictions imposed on borrowers such as loan condition.

The Fed, which received about 2,000 letters on the program, declined to comment.

Michelle Price reports in Washington; Editing by Matthew Lewis

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