Interim Report: MSLP Loan Losses' Effect on Treasury's Investment (SIGPR-A-23-002-2)

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Summary

Interim audit report SIGPR-A-23-002-2, dated March 31, 2023, from the Office of Audits of the Special Inspector General for Pandemic Recovery to the Chief Recovery Officer of the U.S. Department of the Treasury, issued as part of an audit of how Main Street Lending Program (MSLP) loan losses affect Treasury's investment. It states that SIGPR issued subpoenas to 47 MSLP participating banks seeking records on loans in default, delinquent, impaired or involving material misrepresentation. As of March 29, 2023, 16 banks had responded, covering 778 loans worth $5,512,077,276. The responses report defaults of $204.3 million, delinquent interest payments of $57.1 million, 181 loans with delinquent financial reporting, impaired loans of $158.5 million and 166 loans worth $1.24 billion paid off. The report says it is informational and requires no response.

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SIGPR-A-23-002-2 
 
 
 
 
 
Interim Report:  Audit of the Effects  
the Main Street Lending Program’s  
Loan Losses Have on Treasury’s 
Investment in the Program 
 
Report Number SIGPR-A-23-002-2 
March 31, 2023 
 
 
 
 
 
 
 
 
 
 
 
 
Office of the Special Inspector General for  
Pandemic Recovery 
Office of Audits 

 
SIGPR-A-23-002-2 
1 
 
Office of the Special Inspector General for Pandemic Recovery 
 
March 31, 2023 
 
 
TO: 
Jacob D. Leibenluft 
Chief Recovery Officer 
U.S. Department of the Treasury 
 
 
FROM: 
Theodore R. Stehney   
Assistant Inspector General for Auditing 
Special Inspector General for Pandemic Recovery (SIGPR) 
 
SUBJECT: 
Interim Report:  Audit of the Effects the Main Street Lending 
Program’s Loan Losses have on Treasury’s Investment in the 
Program A-23-002-2 
 
The purpose of this interim report is to provide information about data we are collecting 
from banks on the performance of their Main Street Lending Program (MSLP) loans. We 
are collecting and reviewing this information as part of our Audit of the Effects the Main 
Street Lending Program’s Loan Losses Have on Treasury’s Investment in the Program 
(A-23-002).   
 
The most recent update from the Board of Governors of the Federal Reserve System, 
dated March 10, 2023, reports that the MSLP has recognized approximately $115 
million in actual loan losses as of February 28, 2023. An independent audit1 of the 
Special Purpose Vehicle established by the Federal Reserve to run the MSLP shows an 
allowance for loan losses of $1.07 billion as of December 31, 2022.2 This same audit 
reports $2 billion in loans in non-accrual status at the end of 2022.3 SIGPR had been 
unable to obtain any of the detail behind this loan loss information. Therefore, SIGPR 
issued subpoenas to 47 MSLP participating banks. The subpoenas requested banks to 
provide records pertaining to all MSLP loans held by the bank that met one or more of 
the following criteria: 
 
• are or were in default; 
• are or were at least 90 days delinquent in interest payments; 
• are at least 90 days delinquent in providing quarterly or annual financial reports 
required by loan covenants; 
 
 
1 https://www.federalreserve.gov/aboutthefed/files/msllcfinstmt2022.pdf 
2 The allowance for loan losses consists of loan participations collectively evaluated for impairment and 
reflects an estimate of probable loan losses inherent in the loan portfolio.  
3 A loan is placed in non-accrual status if it becomes due and unpaid for 90 days (late interest payments, 
in the case of the current MSLP loan portfolio), or if management determines the collection of the full amount 
due is not probable.  

 
SIGPR-A-23-002-2 
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Office of the Special Inspector General for Pandemic Recovery 
 
• are or were deemed “impaired” by the banks or by outside auditors or examiners; 
or  
• were made to a borrower for whom the bank has determined that there is a 
reasonable basis to suspect that the borrower made a material misrepresentation 
at any time during the loan process.   
 
This interim report provides a summary of the results of subpoena responses that the 
Office of Audits has received to date.   
    
Background 
On April 9, 2020, the Board of Governors of the Federal Reserve System and Secretary 
of the Treasury announced the establishment of the MSLP under the authority of 
Section 13(3) of the Federal Reserve Act, with approval of the Secretary. In total, 319 
lender banks participated in the MSLP issuing 1,830 loans to small and medium sized 
businesses. The total value of the loans issued was approximately $17.5 billion. The 
Federal Reserve Bank of Boston, which manages the program, set up a Special 
Purpose Vehicle (SPV) to purchase 95 percent of participations in MSLP loans from 
lender banks. These purchases were backed by a $16.6 billion equity investment by the 
Department of Treasury (Treasury). The lender banks retain the remaining 5 percent of 
the risk associated with making a loan. 
 
All MSLP borrowers are required to provide certain financial reporting to their lender 
either quarterly or annually, depending on the report. Required reporting includes data 
on borrower assets, liabilities, expenses, net income, and other financial data. 
Borrowers are also required to provide a list of certifications and covenants, which 
includes a provision that any material misrepresentation made by the borrower would 
result in its loan becoming promptly due and payable. 
 
Payment terms for MSLP loans are for five years. No payments are due in the first year. 
After the first year of the loan, interest payments become due in accordance with the 
loan agreement. No principal is paid in the first or second year of the loan. The loans 
are amortized over the remaining term of the loan with 15 percent of principal due at the 
end of year three, 15 percent due at the end of year four, and a balloon payment of 70 
percent at the end of year five.   
 
All MSLP loans were issued between July 2020 and January 2021 and are currently in 
year three of the loan term. Therefore, interest payments are the only payments that  
have been due to date. Principal payments will be due starting in July 2023 through 
January 2024, depending on the loan origination date.     
 
Because of Treasury’s investment in the MSLP, SIGPR has sought to obtain detail 
behind the nature of the program’s reported $115 million in actual loan losses. SIGPR 
asked banks to provide information on defaults, which can be either technical (i.e. a  
 

 
SIGPR-A-23-002-2 
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Office of the Special Inspector General for Pandemic Recovery 
breach of the loan covenants), or monetary (failure to make timely payment). With 
interest payments now due, SIGPR requested data on interest payments that were over  
90 days delinquent. SIGPR also requested information on impaired loans, which are 
loans where the bank or another entity deems it probable that not all the loan principal 
and interest will be collected. Finally, SIGPR asked banks about compliance with 
financial reporting requirements, and whether banks were aware of any borrower 
material misrepresentations during the loan process.   
 
Summary of Information Received to Date 
 
As of March 29, 2023, SIGPR issued subpoenas to 47 lender banks. SIGPR selected 
banks for subpoena based on the number of MSLP loans issued, the dollar value of loans, 
and risk factors developed internally by the SIGPR Office of Audits. The subpoenas were 
sent out in three different tranches, as follows: 
 
Figure 1 – Summary of Subpoenas 
 
Tranche 
Subpoena 
Due Date 
# of Banks 
Subpoenaed 
# of 
Responses 
1 
03/01/20234 
11 
10 
2 
04/03/2023 
10 
6 
3 
04/26/20235 
26 
0 
TOTAL 
 
47 
16 
 
The 47 subpoenaed banks have issued a total of 1,095 of MSLP loans, representing 60 
percent of all MSLP loans. The 1,095 loans had a total loan value of over $10.1 billion, 
representing 58 percent of the MSLP total loan value.    
 
As of March 29, 2023, 16 banks responded to our subpoenas. Those 16 banks provided 
us with information on whether any of their MSLP borrowers were in default; had 
delinquent interest payments; had delinquent quarterly or annual financial reporting; had 
loans that were deemed impaired; or who made material misrepresentations during the 
loan process. We also obtained information on loans that were paid back in full. 
 
The following tables represent the information we have collected as of March 29, 2023: 
 
Figure 2 – Summary of Responses Received Compared to All MSLP Loans 
 
 
4 Two banks in tranche 1 were given extensions to March 15, 2023. 
5 One bank in tranche 3 was given a unique due date of April 7, 2023. 
 
MSLP Universe 
% of MSLP Universe  
Number of Banks 
16 
319 
5% 
Number of Loans Issued 
778 
1,830 
42.5% 
Dollar Value of Loans 
Issued 
$5,512,077,276 
$17,459,024,461 
31.6% 

 
SIGPR-A-23-002-2 
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Office of the Special Inspector General for Pandemic Recovery 
 
Figure 3 - Summary of 16 Subpoena Responses 
 
 
Count 
$ Loan Value 
Defaults 
18 
$204.3 million 
Delinquent Interest 
Payments 
17 
$57.1 million 
Delinquent Financial 
Reporting 
181 
$868.8 million 
Impaired Loans 
26 
$158.5 million 
Material 
Misrepresentation 
2 
$7.4 million 
Paid Off 
166 
$1.24 billion 
 
Conclusion 
 
As of March 29, 2023, 16 banks responded to our subpoenas for MSLP loan information. 
Those 16 banks issued 778 MSLP loans, at a value of over $5.5 billion. That represents 
approximately 43 percent of the total number of MSLP loans issued, and 32 percent of 
the total dollar value.  
 
SIGPR finds the information banks reported in response to the subpoenas significant 
considering that principal payments have not yet come due on any MSLP loan to date. 
Bank responses to our subpoenas show that of the 778 loans issued by the 16 responding 
banks, $204.3 million in loans are or were in default; $57.1 million in loans have or had 
delinquent interest payments; 181 borrowers are at least 90 days delinquent in providing 
required quarterly or annual financial reports; $158.5 million in loans are or were deemed 
impaired by the bank or by outside auditors or examiners; and 2 loans had borrowers 
where the bank determined that the borrower made material misrepresentations during 
the loan process. However, bank responses did show that 166 of the 778 loans, with a 
value of $1.24 billion, have been paid in full by the borrower.   
 
This interim report is informational in nature, and no response is required. We plan to 
issue interim reports as we get more information.  
 
Compliance Statement 
 
In accordance with generally accepted government auditing standards (GAGAS), during 
an audit, the auditors may provide interim reports to appropriate entity and oversight 
officials. This communication is informational in nature and requires no further action 
from management.  
 
 
 
 
 

 
SIGPR-A-23-002-2 
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Office of the Special Inspector General for Pandemic Recovery 
 
The related ongoing audit, when completed, will comply with GAGAS. The associated 
performance audit report that will be issued in the future will incorporate the information 
discussed in this report. 
 
 
Audit Team 
 
This audit is managed and conducted by the individuals listed below: 
 
 
Kevin Gallagher 
Audit Manager 
Corina Niner 
Auditor-In-Charge 
 
 
 

 
SIGPR-A-23-002-2 
6 
FOR OFFICIAL USE ONLY 
 
 
Memorandum Distribution 
 
Chief Recovery Officer – U.S. Department of the Treasury  
 
Office of General Counsel – U.S. Department of the Treasury  
 
Inspector General – Special Inspector General for Pandemic Recovery  
 
Office of General Counsel – Special Inspector General for Pandemic Recovery

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