Breaking News
Black Friday SALE: Up to 54% off InvestingPro! Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Thousands of U.S. banks may sit out small-business rescue plan on liability worries: sources

EconomyApr 02, 2020 02:07PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: U.S. Secretary of the Treasury Mnuchin walks to the meeting for a coronavirus relief package in Washington 2/2

By Pete Schroeder and David Henry

WASHINGTON (Reuters) - Thousands of U.S. banks, including some of the country's largest lenders, have said they may not participate in the federal government's small-business rescue program due to concerns about taking on too much legal and financial risk, five people with direct knowledge of industry discussions told Reuters.

Seeking to help millions of small businesses that have dramatically curtailed operations or shut down altogether during the coronavirus pandemic, Congress included $349 billion for small firms in its $2 trillion stimulus package passed last week. Small businesses, which will rely on banks to get the funds, employ about half of U.S. private sector employees, according to the Small Business Administration website.

Borrowers can apply for the loans through participating banks starting from Friday and until June 30. Trump administration officials have said they want the loans disbursed within days.

But representatives of some major lenders, as well as thousands of community lenders, have expressed serious reservations about participating in the scheme in its current form and called that deadline totally unrealistic.

Their main concern is that the Treasury Department said on Tuesday that lenders will be responsible for preventing fraudulent claims by verifying borrower eligibility, which is determined by a few measures including the borrower's number of employees and its average monthly payroll costs.

Banks also must take steps to prevent money laundering and terrorist financing, a process that would normally take weeks, the sources said.

Banks are concerned they could face regulatory penalties or legal costs down the line if things go awry in the haste to get money out the door. But at the same time they are worried they will be blamed for not moving funds fast enough if they perform due diligence the way they would under normal circumstances, the sources said.

Community banks said the Treasury's guideline interest rate of 0.5% will be unprofitable, and that many small banks will not have sufficient liquidity to front up the loans.

"Taking all of the above concerns into consideration, many banks have already indicated that they will not be able to use the Program under the current terms," the Independent Community Bankers of America wrote to the U.S. Treasury and Small Business Administration, which are jointly administering the loans program, on Wednesday.

"We strongly recommend that you make changes to the guidelines before the Program goes live so that it will work as intended by Congress," the group, which represents thousands of small banks across the country, wrote.

The Treasury and the Small Business Administration did not immediately respond to requests for comment.

After hearing the concerns, Treasury officials are considering withdrawing Tuesday's guidance and are working to fix the issues, according to two sources.

Reuters could not learn which specific big banks are thinking about shunning the program. The Bank Policy Institute (BPI), a Washington trade group, hosted a call on Wednesday during which executives from its members discussed their concerns, three of the sources said.

"Our banks are committed to ensuring this program works and that all of the operational complexities and process challenges are worked through so we can achieve Congress’s goal of helping America’s small businesses," Greg Baer, President and CEO of the BPI, said on Thursday.

Members of the group include JPMorgan Chase & Co (N:JPM), Bank of America Corp (N:BAC), Wells Fargo & Co (N:WFC) Citigroup Inc (N:C), Truist Bank and PNC Bank .

Banks want a document customers can sign attesting to their eligibility and other requirements, thereby relieving the industry of responsibility for potential misconduct.

One source said banks are also seeking a written assurance from the government regarding their legal liabilities and obligations before they agree to participate in the program.

Thousands of U.S. banks may sit out small-business rescue plan on liability worries: sources
 

Related Articles

Euro zone bond yields drop as COVID variant sows fear
Euro zone bond yields drop as COVID variant sows fear By Reuters - Nov 26, 2021

By Abhinav Ramnarayan and Dhara Ranasinghe LONDON (Reuters) -Euro zone government bond yields dropped sharply across the board on Friday as investors reacted to a newly identified...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Dietmar Stahl
Dietmar Stahl Apr 01, 2020 11:14PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Why they have concerns of giving loan when the money comes from the government. Banks should be forced to process these loans or kicked out of the program period. Or the government take direct applications circumvent banks that have "observations".
Gamer Turtle
GamerTurtle Apr 01, 2020 11:14PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
if too many bad loans were given out in a rush, it could result huge legal fights. if too slow it could be on hook as well. kinda like when your boss give you 20 tasks a hour and wants you to do them well and quick.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email