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Losing Money

There is no longer any question that the economy will take years, not months, to fully recover from COVID-19, and additional funding for government and government-backed loans seems inevitable at some point. Examining the programs from the initial COVID-19 relief package provides context for financial institutions considering their role in the next round of relief.

The rollout of the Small Business Administration’s Paycheck Protection Program—a prominent pillar of the initial CARES Act that allowed lenders to offer struggling businesses government-backed loans—may serve as a cautionary tale. The program was designed to minimize, if not eliminate, default and liability costs to financial institutions, but in practice demonstrated the many risks institutions face when participating in government lending programs.

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