The Federal Reserve and the FDIC released an interim final rule on Thursday, encouraging financial institutions to lend to small businesses through SBA’s Paycheck Protection Program. Although the rule does not apply directly to credit unions, it helps all lenders indirectly by expanding the market that lenders will have to sell PPP Loans.

The intent of the Regulatory Capital Rule: Paycheck Protection Program Lending Facility and Paycheck Protection Program Loans is to provide liquidity to small business lenders and the broader credit markets, help stabilize the financial system and provide economic relief to small businesses nationwide, according to text included in the interim final rule.

Specifically, the rule authorizes Federal Reserve Banks to accept PPP loans as collateral when making loans to banks.  It also modifies the agencies’ capital rules to neutralize the regulatory capital effects of participating in the Federal Reserve’s PPP facility, because there is no credit or market risk in association with PPP loans pledged to the facility, according to a Federal Reserve press release on the rule. “Consistent with the agencies’ current capital rules and the CARES Act requirements, the interim final rule also clarifies that a zero percent risk weight applies to loans covered by the PPP for capital purposes.”

Comments on the rule will be accepted for 30 days following the publication of the rule in the Federal Register.

The interim final rule can be viewed on the Federal Reserve website.