SIGPR Alert Memorandum — Closure of Participating Main Street Lending Program Bank (Signature Bank)
Summary
An alert memorandum from the Special Inspector General for Pandemic Recovery, SIGPR-A-23-002-1, dated April 11, 2023, from Assistant Inspector General for Auditing Theodore R. Stehney to Treasury Chief Recovery Officer Jacob D. Leibenluft. It flags that Signature Bank of New York, closed on March 12, 2023, had issued 5 loans under the Main Street Lending Program, valued at $113.4 million. The memo explains that a Federal Reserve Bank of Boston vehicle bought 95 percent participations in MSLP loans, backed by a $16.6 billion Treasury equity investment, and that 319 lender banks issued 1,830 loans valued at approximately $17.5 billion, with approximately $115 million in net loan losses as of February 28, 2023. It recommends that Treasury coordinate with the Federal Reserve Bank of Boston to protect its investment; Treasury's Deputy Assistant Secretary for Capital Markets agreed.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
Office of the Special Inspector General for
Pandemic Recovery
Office of Audits
Alert Memorandum:
Closure of Participating Main
Street Lending Program Bank
Report Number SIGPR-A-23-002-1
April 11, 2023
SIGPR-A-23-002-1
Office of the Special Inspector General for Pandemic Recovery
April 11, 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: Alert Memorandum: Closure of Participating Main Street Lending
Program Bank A-23-002-1
The purpose of this memorandum is to notify you of an issue we found during planning
for our Audit of the Effects the Main Street Lending Program’s Loan Losses Have on
Treasury’s Investment in the Program (A-23-002).
On Sunday, March 12, 2023, the Federal Deposit Insurance Corporation (FDIC)
announced that Signature Bank of New York (Signature Bank) was closed by the New
York State Department of Financial Services. Signature Bank issued 5 loans under the
Main Street Lending Program (MSLP), with a value of $113.4 million. Treasury should
coordinate with the Federal Reserve Bank of Boston (FRBB) to determine how this
closure may affect Treasury’s investment in the MSLP.
Background
The MSLP was designed to help credit flow to small and medium-sized for-profit
businesses and nonprofit organizations that were in sound financial condition before the
onset of the COVID-19 crisis but needed loans to help maintain their operations until they
recovered from, or adapted to, the impacts of the pandemic.
The FRBB manages the program and set up a Special Purpose Vehicle (SPV) to
purchase 95 percent of participations in MSLP loans from lender banks. These purchases
are backed by a $16.6 billion equity investment by Treasury. The lender banks retain the
remaining 5 percent of the risk associated with making a loan. By the end of the program,
319 participating lender banks issued 1,830 MSLP loans valued at approximately $17.5
billion.
As of February 28, 2023, the SPV has recognized approximately $115 million in actual
MSLP loan losses, net of subsequent recoveries.
SIGPR-A-23-002-1 1
Office of the Special Inspector General for Pandemic Recovery
Specific Concern
During planning for our Audit of the Effects the Main Street Lending Program’s Loan
Losses Have on Treasury’s Investment in the Program, we identified a significant concern
that warrants your immediate attention. This concern is described below and will be
further explored as we continue with audit fieldwork.
Closure of a Participating Main Street Lending Program Lender Bank
Signature Bank, an MSLP lender bank that issued 5 MSLP loans valued at $113.4 million,
was closed on March 12, 2023, by the State of New York. To protect depositors, the FDIC
transferred all of Signature Bank’s assets to an FDIC run institution that will continue to
be operated by the FDIC until it can be sold. Although FDIC guidance indicates that
borrowers of Signature Bank should continue to make their loan payments as usual to the
FDIC’s newly established institution, it is not clear how this closure, or any potential future
closures, will affect MSLP borrowers and their loans.
Conclusion
Signature Bank held 5 MSLP loans valued at $113.4 million. In light of Signature Bank’s
closure, it is not clear how MSLP borrowers and their loans will be affected. Therefore,
Signature Bank’s closure, as well as any potential future bank closures, may put
Treasury’s investment in the MSLP at risk.
Recommendation
The Special Inspector General for Pandemic Recovery recommends that Treasury
coordinate with the Federal Reserve Bank of Boston to determine what can be done to
protect Treasury’s investment in the Main Street Lending Program regarding this closure
and any potential bank closures in the future.
Agency Comments
Treasury’s Deputy Assistant Secretary for Capital Markets agreed with our
recommendation. Treasury’s written comments are included in Appendix B.
Compliance Statement
In accordance with generally accepted government auditing standards (GAGAS), during
an audit, the auditors may provide interim reports of significant matters to appropriate
entity and oversight officials. Such communication alerts officials to matters needing
immediate attention and allows them to take corrective action before the final report is
completed.
SIGPR-A-23-002-1 2
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 issues
discussed in this alert memorandum.
Audit Team
This audit was managed and conducted by the individuals listed below:
Michael Sinclair Audit Manager
Kevin Gallagher Auditor-In-Charge
SIGPR-A-23-002-1 3
Office of the Special Inspector General for Pandemic Recovery
Appendix A - 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
SIGPR-A-23-002-1 A-1
Office of the Special Inspector General for Pandemic Recovery
Appendix B – Agency Comments
SIGPR-A-23-002-1 B-1
Office of the Special Inspector General for Pandemic Recovery
Appendix B – Agency Comments
SIGPR-A-23-002-1 B-2
File and source
- File
- REPORT_SIGPR_alert-memorandum-closure-participating-main-street-lending-p_2023-04-11.pdf
- Size
- 1,329,727 bytes
- SHA-256
- 86a41e6a0e21f37f03b6682b058269805489d68b4de0190f8a8df99415c607a3
- Original
- www.oversight.gov