BPInsights: April 11, 2020

BPInsights: April 11, 2020

Top of the Agenda

Fed Announces Additional $2.3 Trillion in Potential Emergency Lending to Support the Economy

On April 9, the Fed announced several new lending facilities with a potential capacity of $2.3 trillion to assist households and employers and stymie the economic slump caused by the COVID-19 health crisis. The facilities are authorized under the Fed’s emergency authority in Section 13(3) of the Federal Reserve Act. The credit will be facilitated through individually established special purpose vehicles (SPVs) with a percentage of funding provided by U.S. Treasury equity investments.

The announcement included the creation of the Paycheck Protection Program Lending Facility to provide financing as well as balance sheet relief to lenders originating loans under the Paycheck Protection Program. The Fed also published two draft term sheetsfor a Main Street Loan Facility, which will provide up to $600 billion in 4-year loans to companies with fewer than 10,000 employees and 2019 annual revenue below $2.5 billion. In addition to these facilities, the Fed announced an expansion of the Primary and Secondary Market Corporate Credit Facilities, an expansion to the Term Asset-Back Securities Loan Facility and the establishment of a Municipal Liquidity FacilityRead More >>

 

5 Stories Driving the Week

1. Banks Process Hundreds of Thousands of Paycheck Protection Program Loans

America’s banks are stepping up to help the government get money into the hands of small businesses. At a White House briefing this week, executives from BPI member banks reported that they have processed hundreds of thousands of Paycheck Protection Program loans in the first few days of the program. However, the Small Business Administration (SBA) platform that approves the loans wasn’t designed for this volume which has caused delays in the money out to small businesses. Outside of the operational challenges, Bloomberg reports banks are facing regulatory hurdles pertaining to know-your-customer (KYC) requirements. These rules mandate that banks take additional measures to due diligence customers, including identifying, verifying and certifying business owners, which can take up to two hours per application for every new borrower. This has forced some banks to prioritize preexisting customers during the initial launch of the program to meet the program’s objectives of providing quick relief to borrowers. Notwithstanding these issues, the banking industry, SBA and U.S. Treasury Department continue to work collaboratively to resolve these issues in an effort to ensure small businesses gain access to these needed funds quickly.

Treasury Secretary Mnuchin and Congress have indicated that efforts are already underway to approve an additional $250 billion in aid for the program. The details are still being negotiated, but Congress and the Administration have indicated they want to act quickly. Learn More >>

 

2. Paper Checks Slow Down Economic Impact Payments and Could Increase Fraud Risks

As part of an ongoing commitment to provide rapid economic relief and expedite economic impact payments established under the CARES Act, banks and credit unions are urging the Department of the Treasury to maximize the use of electronic payments to avoid the alternative of mailing tens of millions of paper checks over the next several weeks. Forms of electronic payments that have been suggested include direct deposits, reloadable pre-paid cards, and virtual cards. Politico reported on a letter filed by the American Bankers Association, Consumer Bankers Association, BPI, Credit Union National Association and other trade associations in early April, which asserted that paper checks would slow the speed at which economic assistance could be provided, and may also force those without a bank account or with limited access to banking services to turn to high-fee check cashers or other lenders to access money, thereby potentially resulting in more frequent incidences of fraud or other financial crimes. Treasury has announced that it plans to begin relief payments in mid-April. Learn More >>

 

3. Former Federal Reserve Board and Public Policy Veteran Joins BPI Team

On April 6, the Fed released additional FAQs to address questions about the Commercial Paper Funding Facility (CPFF), which the Fed plans to begin operating through a special purpose vehicle beginning April 14, 2020. The FAQs address several important items, including providing additional details on how the CPFF will function, issuer eligibility, issuer registration process and timing, and commercial paper eligibility and limits. The landing page for the FAQs also notes that they may be periodically updated and therefore advises that interested parties should check the website for new FAQs or revisions to a previously issued FAQ. Learn More >> 

 

4. Fed Releases Additional FAQs on Commercial Paper Funding Facility 

On April 6, the Fed released additional FAQs to address questions about the Commercial Paper Funding Facility (CPFF), which the Fed plans to begin operating through a special purpose vehicle beginning April 14, 2020. The FAQs address several important items, including providing additional details on how the CPFF will function, issuer eligibility, issuer registration process and timing, and commercial paper eligibility and limits. The landing page for the FAQs also notes that they may be periodically updated and therefore advises that interested parties should check the website for new FAQs or revisions to a previously issued FAQ. Learn More >> 

 

5. Federal Banking Agencies Provide Guidance on Loan Modifications and Working with COVID-19 Effected Borrowers

On April 7, the Federal Reserve Board, the FDIC, the NCUA, the OCC, and the CFPB, in consultation with state financial regulators, issued a revised interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications.

The revised statement:

  • Clarifies the interaction between the interagency statement issued on March 22, 2020, and the temporary relief provided by Section 4013 of the CARES Act. Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications as troubled debt restructurings (TDRs);
  • Affords financial institutions “broad discretion to implement prudent modification programs consistent with the framework included in this statement”;
  • Includes supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital; and 
  • Provides the agencies’ views on consumer protection considerations.

 

In Case You Missed It

Federal Bank Regulators Announce 1% Reduction to Community Bank Leverage Ratio

On April 6, the federal bank regulatory agencies announced a reduction to the community bank leverage ratio from 9% to 8%, as required under the CARES Act, which was signed into law in mid-March. The temporary decrease will stay in effect until the national state of emergency is lifted, or until December 31, 2020, after which it will increase by half a percentage point each year until it returns to its current 9% level in 2022.


BCBS Announces Additional Measures to Alleviate the Impact of COVID-19

On April 3, the Basel Committee on Banking Supervision (BCBS) announced additional measures to ease the impact of COVID-19 on the banking systemproviding additional operational capacity for banks and their supervisors to respond to the challenges of COVID-19. Along with the announcement, the BCBS also published technical clarifications to ensure that banks reflect the risk-reducing effect of the extraordinary support measures that governments have introduced to alleviate the economic and financial impact of COVID-19 when calculating their regulatory capital requirements.


Financial Stability Board Releases First of Three Reports to Enhance Cross-Border Payments

On April 9, the Financial Stability Board published the first of a three-stage report titled “Enhancing Cross-Border Payments,” which seeks to identify existing challenges and friction in cross-border payment processes. The report assessed and identified the following friction areas:
  • Fragmented data standards or lack of interoperability;
  • Complexities in meeting compliance requirements, including for anti-money laundering and countering the financing of terrorism (AML/CFT), and data protection purposes;
  • Different operating hours across different time zones; and
  • Outdated legacy technology platforms.
The reports will be delivered to the G20 and will help to establish a set of recommendations and a roadmap that can be used to improve coordination and collaboration between international partners to accomplish these goals. The second report is expected to be released in July 2020 and will examine areas for further public sector work. The third and final report is planned for release in October 2020.

 

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