OIG Evaluation: FRB Minneapolis PPPLF Collateral Risk Management (2024-FMIC-B-018)

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Executive Summary, 2024-FMIC-B-018, September 23, 2024 
FRB Minneapolis Followed Its Paycheck Protection Program Liquidity 
Facility Collateral Risk Management Processes and Can Enhance 
Monitoring and Collection Processes 
Finding 
The Paycheck Protection Program Liquidity Facility (PPPLF) followed its 
collateral risk management processes for at‐risk, unresolved, and 
potentially fraudulent collateral for the pledged Paycheck Protection 
Program (PPP) loans we reviewed. However, the PPPLF did not fully 
develop and document measures to address the risk of nonpayment. 
Federal Reserve System representatives determined that it was unlikely 
that both (1) PPPLF participants would become insolvent and (2) the 
U.S. Small Business Administration (SBA) would deny guarantee 
purchase payment. As of March 31, 2024, the System has charged off a 
de minimis dollar amount of unpaid PPPLF advances; however, the 
amount of charge-offs may increase if the SBA denies guarantee 
purchase payment for pledged PPP loans and PPPLF participants 
responsible for repayment of those advances are insolvent. 
In response to the evolving economic impacts of the COVID-19 
pandemic, the Board of Governors of the Federal Reserve System 
quickly authorized the PPPLF and designated the Federal Reserve Bank 
of Minneapolis (FRB Minneapolis) as the program administrator. The 
PPPLF is no longer issuing advances; however, to reduce financial risk 
should the Board need to establish a similar lending facility in the future, 
Reserve Banks should establish as soon as practical processes to 
(1) identify data needs during a facility’s design phase and work with
partner agencies to explore options for facilitating information sharing
and (2) independently verify nondepository institution solvency and that
pledged loans are funded in a manner consistent with facility
requirements.
Recommendation 
Our report contains one recommendation designed to help FRB 
Minneapolis strengthen its processes related to repayment of 
outstanding advances. In its response to our draft report, FRB 
Minneapolis concurs with our recommendation and outlines actions to 
address it. We will follow up to ensure that the recommendation is fully 
addressed. 
Purpose 
The purpose of this evaluation was to 
assess the effectiveness of the System 
PPPLF’s processes for (1) identifying 
and managing at-risk and unresolved 
collateral, (2) addressing 
nonpayment, and (3) detecting and 
mitigating fraudulent collateral. The 
scope of our evaluation included PPP 
loans pledged to the PPPLF as 
collateral from February 2022 to 
December 2023. 
Background 
The COVID-19 pandemic disrupted 
economic activity in the United 
States, which heightened the need for 
businesses to obtain credit to manage 
cash flows and sustain operations 
until economic conditions normalized. 
To support lenders that originated 
SBA PPP loans to small businesses, the 
Board authorized the PPPLF using 
section 13(3) of the Federal Reserve 
Act, with prior approval of the 
secretary of the U.S. Department of 
the Treasury. FRB Minneapolis 
administers the PPPLF, which includes 
servicing the remaining PPPLF 
portfolio. As of March 31, 2024, the 
PPPLF had 145,971 outstanding PPP 
loans pledged as collateral to the 
PPPLF against advances totaling over 
$3 billion—approximately 
$550 million held by depository 
institutions and $2.5 billion held by 
nondepository institutions. 
2024-FMIC-B-018

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