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