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I had a long talk with my small community bank about my paycheck protection (PPP) loan application. As a result, I figured out why the big banks, such as JPMorgan, Capital One, and Citi, are not participating at all and why others, like Wells Fargo, have capped their participation at $10 Billion token amount in loans.
The PPP loans are set at the low interest rate of 1%, which is lower than normal loans for cars, houses, etc. This has caused the banks to not want these loans on their balance sheets. Why?
The banks have offered excuses about “too many uncertainties and questions remain to be answered” That is a ruse. If the PPP, which will be nearly a trillion in size, made the banks money, they would figure out the answers to those questions.
Since 2008, big banks have to now undergo stress tests. They need certain ratios of cash to liabilities, etc. So, if they use up the finite amount of loaning ability on low-profit 1% PPP loans, then they lose out on more profitable loan opportunities.
Pure greed is why people cannot use the big banks. This is why Steven Mnuchin and Larry Kudlow are urging people to use small banks.
It is not even clear yet whether the small banks will ultimately approve the loans. They have their internal underwriters mulling them over before releasing the loans to the SBA to be paid. So, our federal government has a huge amount of money waiting to be distributed to banks through the SBA and the banks are turning up their noses.
Give this story about a week before any of the morons in the mainstream press catch on.