Wall Street banks criticized the U.S. government on Wednesday after the Small Business Administration said it would temporarily close its Paycheck Protection Program (PPP) for small businesses hurt by the novel coronavirus to all but the country's smallest lenders.
The agency said it would only accept loans from banks with assets of $1 billion or less from 4 p.m. EDT (2000 GMT) until midnight on Wednesday. It said 5,300 lenders had originated 960,000 loans worth nearly $60 billion in total by Wednesday at 5 p.m. EDT.
"In addition to ensuring access for the smallest lenders, we expect that providing this reserved processing time today will enhance the SBA’s loan system performance,” the SBA and U.S. Treasury said in a statement, referring to technology problems the program has been experiencing.
The move appeared to be aimed at addressing fears that small lenders which predominantly serve minority-owned businesses would have to compete with big banks for the program's more than $310 billion after they exhausted money ring-fenced for them on Tuesday.
There are approximately 3,862 commercial banks with assets of less than $1 billion, according to 2019 regulatory data, although many credit unions and other community lenders would also be small enough to use the new reserve window.
But the decision angered big banks, which are sitting on hundreds of thousands of applications from small businesses and had been criticized by policymakers for failing to get funds to needy clients during the program's first round.
"With the SBA blocking nearly 800 banks, relief for potentially thousands of small business owners and their employees will be delayed," said Kevin Fromer, CEO of the Financial Services Forum which represents Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC) and JPMorgan (NYSE:JPM), among others.
"A better solution would be a fully operational system that allows banks of all sizes to provide support to Main Street," he said in a statement.
The SBA released $310 billion in fresh small-business aid on Monday, after the program's first $349 billion was exhausted in less than two weeks.
Created as part of a $2.3 trillion congressional economic relief package, the program allows small businesses hurt by the epidemic to apply for government-guaranteed, forgivable loans with participating banks.
Wednesday's announcement is the latest twist for the program, which has been beset by technology and paperwork issues and subject to intense scrutiny due to worries the money was not getting to the most deserving companies.
During the second round, Congress ring-fenced $30 billion of the funds for banks with less than $10 billion in assets and other community lending groups that predominantly service minority-owned businesses, amid fears that the country's biggest banks would suck up the funds.
With so much pent-up demand, that pot of cash was exhausted on Tuesday, requiring smaller lenders that didn't secure funds to compete with larger banks, sparking worries businesses owned by people of color may miss out on the loans.
Still, big banks said the move could hurt thousands of other businesses that were depending on them.
"Don't play favorites with small businesses," Richard Hunt, CEO of the Consumer Bankers Association, tweeted.