Banks unprepared for small business loan rollouts, flood of coronavirus loan applications

The Trump administration’s emergency $349 billion Paycheck Protection Program to help small businesses cover their payroll costs was set to roll out on Friday April 3, with banks accepting applications from businesses slammed by coronavirus pandemic. Yahoo Finance’s Brian Cheung joins On The Move to discuss.

Video Transcript

ADAM SHAPIRO: I want to get to the urgent business of helping small businesses get through this crisis. $349 billion was begun to be made available on Friday. But Citibank, one of the largest banks in the United States, sent an mail to its clients saying, this was the closing of that email, quote, "while we are working as quickly as we can, Citi is not yet able to accept the PPP loan applications." A lot of small business owners are being hurt by Citi's inability to process these claims. Brian Cheung is following the latest on what's happening on this front for us. Brian?

BRIAN CHEUNG: Well, Adam, the update from Citi, as I just checked their website, they're still not open yet. That means that of the four largest banks in the United States, Citi is the last one to be able to launch this program, which, as you recall, was supposed to be open on Friday. But as we know, only two of the four major banks were actually able to open portals on Friday. That was Bank of America and also Chase or JP Morgan.

Bank of America was the first to go in the morning on Friday. It had enormous issues with a number of Bank of America checking clients saying they could not actually successfully submit an application because they did not have an outstanding loan with Bank of America. Even those that had loans but paid them off in the past were also denied the ability to process an application. Bank of America did later on clarify that they are taking applications from any sort of clients that do have a loan or lending relationship with the bank and just would be a second batch, or I guess they would reopen the applications at a later point. I did hear some anecdotes of business owners that did not have an outstanding loan but did have a checking account that were ultimately able to get through the portal.

Now, Bank of America says, as of Saturday, they received 145,000 applications for a total of $30 billion of loans. They still need to be vetted to make sure that they can underwrite those loans, but that's the amount that's been applied for. Wells Fargo did actually launch their portal on Saturday. They said that, though, they'll have to cap the loan issuance to $10 billion because, as we know, Wells Fargo is facing an asset cap from the Federal Reserve, as a result of their fake accounts scandal from a few years ago.

But regardless, it seems like it was a rough way to get started for all of these banks. For what it's worth, Steven Mnuchin, the head of the US Treasury, said as an update on Friday that $1.8 billion of loans had been processed. Keep in mind, Adam, this is a $350 billion program.

JULIE HYMAN: And Brian, it's Julie here. The question is, will $350 billion even be enough? Even though we have some banks who aren't ready yet or who are having issues processing all of that volume, with that inundation, you would imagine that they'd get to $350 fairly quickly. I mean, you know the numbers on how many applications they've gotten. Do we know how much the amount of money that they're lending out yet as a part of all this?

BRIAN CHEUNG: We don't have an exact total yet, and a lot of that could be because of the fact that even though a lot of these banks have received applications, they still need to decide, ultimately, who is going to get those loans. But you imagine with the pipeline of money that's coming from that $350 billion of appropriations, hopefully most of the people that apply will ultimately be able to successfully get the loan.

But you raise an interesting point, which is how do we know that $350 billion is enough? As of Friday, $1.8 billion is a drop in the bucket from the total amount that was appropriated. But President Trump did say on Saturday, he launched a tweet saying that ultimately, if the federal government needs to provide more money to this PPP program, they can do that. But again, the issue for right now doesn't seem to be necessarily the size of the pot but the actual means by which they're distributing that money, which as a lot of lawmakers like Marco Rubio from Florida have pointed out, seems to be much more of a logistical issue than I think a lot of policymakers had originally hoped for when they originally drafted the bill.

ADAM SHAPIRO: As we watch these banks in action or inaction, Brian, I'm curious, wasn't today the stress test-- the results, we were going to get the-- and I can't imagine the banks being under any more real-world stress than they are now.

BRIAN CHEUNG: Well, the stress tests are still going on as scheduled. And for those that are unaware, this is a process that the Federal Reserve has done for years after the last financial crisis where they apply a number of stress scenarios to a bank to see if their balance sheet could survive any sort of theoretical shock. In practice, it seems like that's happening in the real world right now. But for what it's worth, the Federal Reserve and the other bank regulators have provided a little bit of wiggle room for some of these banks on a regulatory basis.

There is some concern that with some of the regulations, banks might be told to keep too much capital trapped on their balance sheet for regulatory purposes when, in theory, they might need to use that capital to lend out to those Main Street businesses that really need the help right now. So the Federal Reserve has loosened a few of those regulations, but the stress tests are still going on as scheduled. And the results we won't have today, but the Federal Reserve is still undergoing that process.

ADAM SHAPIRO: All right, we appreciate your input. And remember that Brian Cheung is our Fed-head here at Yahoo Finance. So when he speaks about the Fed, you want to listen. Brian, thank you very much.