US banks sweat regulatory exposure from pandemic loans

BOSTON/NEW YORK/WASHINGTON: Banks that facilitated the U.S. government's Paycheck Protection Program at first saw the effort as a small revenue booster with a patriotic bonus, shepherding US$525 billion in loans to businesses slammed by the fallout of the COVID-19 pandemic.

Fraud by borrowers popped up almost as quickly as the program, overseen by the Small Business Administration , began in April. The Department of Justice has so far brought charges against 82 individuals in 56 cases for around US$250 million in loans, according to a review by the Project On Government Oversight.

Congress passed the US$2.2-trillion Cares Act bailout in March which included nearly US$350 billion for PPP loans, with the pot later increasing. Citing an internal April presentation, the report said that Citigroup identified the negative effect on these businesses as a possible compliance risk, but decided to initially prioritize existing customers because demand was high and it required less manual intervention. Citi declined to comment.

“As we participate in efforts to make critical government stimulus programs available ... we continue to execute on our controls to identify, address and report fraud,” a Truist spokesman told Reuters via email.Wells Fargo said in a May filing that it had received"formal and informal inquiries from federal and state governmental agencies regarding its offering of PPP loans.”

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