Comment by bcx | Hacker News Reader

Comment by bcx | Hacker News Reader

Parent Full thread

I'd like to see a version of this article and headline that figures out the effort required by the banks to administer a program like this.

Quick read looks like 2.8% off the top, for 0 risk (10/349).

Total businesses receiving loans was 1.6M (https://www.pymnts.com/loans/2020/sba-lenders-approval-ppp-l...)

Average money a bank made per loan was 10,000,000,000/1,600,000 (assuming all banks made an equal distribution of loans)

Or $6250 per loan. Given that all loans ran out about 1 week after the program was started.

I imagine the person effort per loan was pretty variable, but that's some pretty crazy capture by the banks.

(Banking sector employs almost 1.5M people), So even if every employee working at all banks, was allocated to work on one loan each for a week. (HINT THIS DIDN'T HAPPEN) the annualized salary for each of these people would have to be 6250*52, or 325K, which it's not).

I guess my question, is how was the decision made to offer banks such a big kicker for administrating loans with nonzero, but practically 0 risk?

(of note, theoretically banks are going to need to do some serving of the loan over it's lifetime, and deal with this loan forgiveness program, etc.. so if that's the case and it's more like 2-3 weeks of person work per loan, you still get some pretty big numbers, but they feel a bit more sane)

FWIW, the banks didn’t feel like it was 0 risk, many of them were doing a lot of due diligence, document checking, etc. because they were worried about it.

I’ve seen stories of small business owners talking about how difficult it was to get the loan through due to having to go back and forth with documents etc. although I’m sure it varied per bank.

2.8% doesn’t seem like that much for me, especially considering the goal was to get the money out the door as fast as possible due to the emergency, and setting up and hiring a government bureaucracy to administer and give the loans would have cost far more in time than the solution of giving it through the banks.

Why did it need to be a bank to begin with? Are banks involved when the government hands out low interest loans for natural disasters. Do they take cuts from that money? If so, I've never heard of it before. What about the 9/11 fund? Did banks get a cut of that money as well? Why is this situation different?

The goal here was to give the money out ASAP as businesses and their employees had already been forced to shutter by the pandemic and lockdown orders and were rapidly marching toward insolvency.

Stuff like the 9/11 compensation fund was on a much longer timeline and was also much smaller - the 9/11 fund was open ended, but ended up being about $7 billion, compared to the $349 billion PPP.

Remember the PPP is intended to give out money to the entire country and that is a huge scale. There was no available mechanism to give out the money, the SBA administers a EIDL grant/loan program but lawmakers on both sides of congress didn’t believe the SBA could give the money out fast enough, so this system of having the banks get money from the SBA was created.

Perspective: 2.8% can get taken out of your credit card swipe too, and this is a heckuva lot harder than that.

I don't think the PPP loan program was "0 risk" and I don't think banks perceived it that way. If they could easily make 2.8% for 0 actual/perceived risk, there would be no reason for any bank to deny any potentially qualified applicant.

From what I read a number of national banks (eg. BofA, Chase, etc) only offered to loan to customers with previous/existing loans (banks reducing risk). I think they were wary of underwriting risk (even though the USA government made assurances to banks) and risk of perception / reputation risk if any companies they applied on behalf of turned out to defraud the PPP program (possible future reputation damage).

There's no definition of 0 risk that involves lending out 350 billion dollars of your own funds and hoping you don't make a single mistake of any kind that causes you to not get your money back. And that's even before you address the opportunity cost of lending out funds at 1% interest.

Reply on news.ycombinator.com