Interim Report No. 3: MSLP Loan Losses with Loan Loss Comparison (SIGPR-A-23-002-3)

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Summary

Interim Report SIGPR-A-23-002-3, issued May 12, 2023 by the Office of the Special Inspector General for Pandemic Recovery's Office of Audits to the Treasury's Chief Recovery Officer, updates its audit of the effects of Main Street Lending Program loan losses on Treasury's investment. It reports that SIGPR subpoenaed 47 lender banks and that, as of May 9, 2023, 39 banks had responded covering 1,008 loans. Those responses show $560.1 million in loans in default, $98.2 million with delinquent interest payments, $192.3 million deemed impaired, and 237 loans worth $2.1 billion paid off. A comparison with 11 banks of similar loan volume shows MS Facilities, LLC with a $1.1 billion allowance for loan losses and $2.0 billion in non-accrual loans for the year ended December 31, 2022. The report states it is informational and requires no response.

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SIGPR-A-23-002-3 
 
 
 
 
 
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-23-002-3 
May 12, 2023 
 
 
 
 
 
 
 
 
 
 
 
 
Office of the Special Inspector General for  
Pandemic Recovery 
Office of Audits 

 
SIGPR-A-23-002-3 
1 
 
Office of the Special Inspector General for Pandemic Recovery 
 
May 12, 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-23-002-3 
 
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). This is an update of Interim Report Number A-23-002-2, issued on March 31, 
2023.    
 
The most recent update from the Board of Governors of the Federal Reserve System, 
dated April 10, 2023, reports that the MSLP has recognized approximately $136 million 
in actual loan losses as of March 31, 2023. An independent audit1 of the Special Purpose 
Vehicle (SPV) 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 A comparison of this loan loss 
information to other lenders can be found in the MSLP Loan Loss Comparison section of 
this report.   
 
SIGPR requested that Treasury obtain MSLP loan default information on its behalf from 
the Federal Reserve Board. However, Treasury indicated that they are unable to obtain 
this information. Therefore, in order to obtain this information, 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; 
 
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-23-002-3 
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Office of the Special Inspector General for Pandemic Recovery 
• are at least 90 days delinquent in providing quarterly or annual financial reports 
required by loan covenants; 
• 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, and an analysis of how MSLP loan loss information 
compares to loan loss data from similarly situated banks.    
    
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 
the 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 $136 million in actual loan losses. SIGPR asked 
banks to provide information on defaults, which can be either technical (i.e. a breach of  

 
SIGPR-A-23-002-3 
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Office of the Special Inspector General for Pandemic Recovery 
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 May 9, 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 47 subpoenaed banks have issued a total of 1,097 MSLP loans, representing 60 
percent of all MSLP loans. The 1,097 loans had a total loan value of over $10.2 billion, 
representing 59 percent of the MSLP total loan value.    
 
As of May 9, 2023, 39 banks responded to our subpoenas. Those 39 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 May 9, 2023: 
 
Figure 1 – Summary of Responses Received Compared to All MSLP Loans 
 
 
Figure 2 - Summary of 39 Subpoena Responses 
 
 
Count 
$ Loan Value 
Defaults 
48 
$560.1 million 
Delinquent Interest 
Payments 
22 
$98.2 million 
Delinquent Financial 
Reporting 
209 
$1.1 billion 
Impaired Loans 
30 
$192.3 million 
Material 
Misrepresentation 
3 
$8.9 million 
Paid Off 
237 
$2.1 billion 
 
  
Subpoena 
Responses 
MSLP  
Universe 
% of  
MSLP Universe  
Number of Banks 
39 
319 
12% 
Number of Loans Issued 
1,008 
1,830 
55.1% 
Dollar Value of Loans 
Issued 
$8,509,622,697 
$17,459,024,461 
48.7% 

 
SIGPR-A-23-002-3 
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Office of the Special Inspector General for Pandemic Recovery 
 
MSLP Loan Loss Comparison 
 
In order to provide context to the loan loss data reported by the independent audit4 of the 
SPV (MS Facilities, LLC) established by the Federal Reserve to run the MSLP, we 
reviewed loan loss data from banks with a similar dollar volume of loan participations to 
MS Facilities, LLC for the year ended December 31, 2022. MS Facilities, LLC had 
approximately $11.7 billion in outstanding loan participations at year end December 31, 
2022. We reviewed the Federal Reserve’s listing of large U.S. commercial banks as of 
December 31, 2022.5  From this list, we reviewed individual banks’ financial statements 
to find a group of banks with a similar dollar volume of loans held. We found 11 banks 
with outstanding loan participations ranging from $10.3 billion to $14.7 billion and 
compared their loan data in regard to allowance for loan losses, loans in non-accrual 
status, and net charge-offs.    
 
The data shows that MS Facilities, LLC’s loan loss figures greatly exceed those from 
banks with a similar amount of loan participations. Specifically, MS Facilities, LLC’s 
allowance for loan losses, non-accrual loans, and net charge-offs were far greater than 
all 11 banks we found for comparison. See Figure 3: 
 
Figure 3 – Comparison of MS Facilities, LLC to Banks with Comparable Loan Volume 
(for the year ended December 31, 2022) 
 
Bank 
Loan 
Participations 
Allowance for 
Loan Losses 
Allowance as 
% of Net 
Loans 
Non-Accrual 
Loans 
Net Charge 
Offs 
A 
$10.3 billion 
$133.0 million 
1.29% 
$28.6 million 
$12.6 million 
B 
$10.7 billion 
$117.8 million 
1.10% 
$38.2 million 
$1.6 million 
C 
$10.8 billion 
$110.8 million 
1.03% 
$6.3 million 
$2.8 million 
D 
$11.2 billion 
$157.6 million 
1.40% 
$21.0 million 
$8.5 million 
E 
$11.6 billion 
$192.1 million 
1.66% 
$56.5 million 
$7.3 million 
F 
$11.6 billion 
$158.4 million 
1.36% 
$13.4 million 
($0.9 million) 
MS Facilities, LLC 
$11.7 billion 
$1.1 billion 
9.09% 
$2.0 billion 
$79.9 million 
G 
$12.0 billion 
$223.3 million 
1.86% 
$42.3 million 
$2.7 million 
H 
$12.2 billion 
$120.2 million 
0.99% 
$66.0 million 
$0.9 million 
I 
$13.6 billion 
$142.2 million 
1.05% 
$38.6 million 
$0.6 million 
J 
$14.4 billion 
$110.8 million 
0.77% 
$27.0 million 
$2.3 million 
K 
$14.7 billion 
$195.7 million 
1.33% 
$30.9 million 
$10.6 million 
 
Banks’ Average 
$12.1 billion 
$151.1 million 
1.25% 
$33.5 million 
$4.4 million 
MS Facilities, LLC 
$11.7 billion 
$1.1 billion 
9.09% 
$2.0 billion 
$79.9 million 
 
 
 
 
 
4 https://www.federalreserve.gov/aboutthefed/files/msllcfinstmt2022.pdf 
 
5 FRB: Large Commercial Banks-- December 31, 2022 (federalreserve.gov) 

 
SIGPR-A-23-002-3 
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Office of the Special Inspector General for Pandemic Recovery 
Conclusion 
 
As of May 9, 2023, 39 banks responded to our subpoenas for MSLP loan information. 
Those 39 banks issued 1,008 MSLP loans, at a value of over $8.5 billion. That represents 
approximately 55 percent of the total number of MSLP loans issued, and 49 percent of 
the total dollar value.  
 
In addition, a comparison of loan loss information between MS Facilities, LLC, and banks 
with a similar dollar volume of loan participations shows that the allowance for loan losses, 
loans in non-accrual status, and charge-offs are far greater with the MSLP loan portfolio 
than they are with loans from comparable banks.  
 
SIGPR finds this loan loss information 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 1,008 loans issued by the 39 responding banks, $560.1 million in loans 
are or were in default; $98.2 million in loans have or had delinquent interest payments; 
209 borrowers are at least 90 days delinquent in providing required quarterly or annual 
financial reports; $192.3 million in loans are or were deemed impaired by the bank or by 
outside auditors or examiners; and 3 loans had borrowers where the bank determined 
that the borrower made material misrepresentations during the loan process. For the year 
ended December 31, 2022, the data on MSLP as a whole shows $2 billion in loans over 
90 days delinquent and $79.9 million in charge-offs. This data on delinquencies and 
charge-offs indicates a far greater incidence of delinquent payments and loan losses than 
lenders with a similar volume of loan participations as the MSLP. However, bank 
responses did show that 237 of the 1,008 MSLP loans, with a value of $2.1 billion, have 
been paid in full by the borrower.   
 
The MSLP was set up to help small and medium sized businesses that were in sound 
financial condition prior to the onset of the pandemic to maintain their operations and 
payroll until conditions normalized. MSLP lenders were required to assess each 
borrower’s pre-pandemic financial condition and post-pandemic prospects to determine 
eligibility for a loan. The high level of MSLP loan charge-offs and loans in non-accrual 
status calls into question whether Treasury should have taken a more active role in 
oversight of the program to protect its investment and help ensure the program was 
administered as intended.  
 
This interim report is informational in nature, and no response is required. We plan to 
issue additional 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-23-002-3 
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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-23-002-3 
7 
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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