BPInsights: March 20, 2020

BPInsights: March 20, 2020

Top of the Agenda

A Note from Our CEO

It’s been an extraordinary week in Washington, D.C., and across the country. In the midst of a health crisis and resulting economic crisis, it is encouraging that the nation’s banks have been a source of strength and support. The industry’s resilience is taken for granted, and the policy focus has been on how banks can most effectively deploy their capital and liquidity to help their business and consumer customers. As Washington works to put together legislative and regulatory programs to limit economic damage, BPI banks are providing their own programs of forbearance and assistance. We’ve launched COVID-19 resource hub to provide an additional one-stop-shopping resource to our banks’ customers, so they are aware of the options available to them during these trying economic times. We at BPI continue to work with you and with policymakers to identify operational and policy obstacles to economic recovery, operating in a bipartisan spirit. And we are washing our hands a lot. 

– Greg Baer, President and CEO


5 Stories Driving the Week

1. Regulators Take Aggressive Actions to Address Market Volatility

Over the past week, the Federal Reserve has taken some extraordinary steps to provide economic stimulus to the economy and liquidity to the financial system. To provide stimulus, on Sunday, the Federal Open Market Committee (FOMC) announced that it was cutting its target for the effective federal funds rate by 100 basis points to a range of 0 to ¼ percent and that it intended to maintain that range “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

To provide liquidity and improve market functioning, the Federal Reserve has taken the following steps:

  • The FOMC increased its planned purchases of Treasury securities to $500 billion and added $200 billion in purchases of agency mortgage-backed securities (MBS) to $200 billion. The FOMC also decided to start reinvesting all principal payments on its holdings of agency MBS and agency debt in agency MBS. The FOMC also expanded its provision of repo funding for the primary dealers against Treasury and agency securities.
  • The Federal Reserve reduced the discount rate to 25 basis points and lengthened the initial term on discount window loans from overnight to 90 days, “prepayable and renewable by the borrower on a daily basis.” Because of these changes, a depository institution can now boost its liquidity coverage ratio (LCR) by borrowing from the discount window.
  • The Federal reserve reduced reserve requirements from 10 percent of transactions accounts to zero.
  • The Federal Reserve reduced the interest rate it charges other central banks on the central bank swap lines by 25 basis points to OIS+ 25 basis points and lengthened the maturity of the draws from one-week to 84 days. In addition to the existing set of central bank counterparties — the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank – the Fed added the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank (Denmark), the Bank of Korea, the Banco de Mexico, the Norges Bank (Norway), the Reserve Bank of New Zealand, the Monetary Authority of Singapore and the Sveriges Riksbank (Sweden).
  • The Federal Reserve Board established a Commercial Paper Funding Facility (CPFF). Under the CPFF, the Federal Reserve would lend to a special purpose vehicle that is capitalized by Treasury funds to finance purchases of newly-issued, top-rated, commercial paper.
  • Federal Reserve Board established a Primary Dealer Credit Facility (PDCF). The PDCF provides primary dealers overnight and term funding collateralized by a broad range of investment-grade debt securities and a broad range of equities.
  • The Federal Reserve Board established the Money Market Mutual Fund Liquidity Facility (MMLF). Under the MMLF, the Federal Reserve Bank of Boston lends to banks and bank holding companies to finance purchases by the banks of a wide range of securities from prime money funds. The loans are extended without recourse and with a zero haircut and so provide the bank complete credit protection on the asset purchased.
  • The Federal Reserve also encouraged banks to make use of overnight credit and the discount window.

The banking agencies together also issued:

  • statement encouraging banks to use the strength from increased capital and liquidity levels to support households and businesses, and issued related Q&As.
  • An interim final rule with a technical change to phase in the automatic distribution restrictions gradually if a firm’s capital levels decline.
  • An interim final rule related to the MMLF, which provides for regulatory capital neutrality for institutions utilizing the MMLF.
  • A joint statement on CRA consideration for activities including certain retail banking services, retail lending activities, and community development activities in response to COVID-19. The statement also encourages financial institutions to work with affected customers and communities, particularly those that are low- and moderate-income.
  • The FDIC issued FAQs to address a number of issues that may arise as institutions work with customers and communities affected by COVID-19.
  • The Federal Financial Institutions Examination Council (FFIEC) issued updated guidance that identifies actions that banks should take to minimize the potential adverse effects of a pandemic and to remind institutions that business continuity plans should address the threat of a pandemic and its potential impact on the delivery of critical financial services.

FDIC Chairman Jelena McWilliams sent a letter to FASB requesting that (i) COVID-19 related modifications be excluded from troubled debt restructuring classification, (ii) banks currently subject to CECL be given the option to postpone implementation, and (iii) a moratorium be placed on the effective date for banks not yet subject to CECL.

To track all the agencies’ actions related to the recent market volatility, please visit our COVID-19 resource page, which includes links to agency developments.

2. Congress Responds to Coronavirus Crisis

On Wednesday, the President signed into law a second coronavirus package transmitted from the Senate following a vote of 90 to 8. The bill provides for paid sick leave,free coronavirus testing,and expanded food assistance and unemployment benefits, as well as requiring employers to provide additional protections for healthcare workers. Prior to the vote, the Senate considered amendments to reform the child tax credit, replacements to the sick and paid family leave section of the bill, and  another amendment to expand the sick- and paid family leave language. All amendments failed.

On Thursday, Senate Republicans introduced the Coronavirus Aid, Relief, and Economic Security Act. The plan includes tax rebates for individuals earning less than $75,000 and couples making less than $150,000. The bill includes a $300 billion small business package to help small businesses make payroll and cover expenses. The small business portions would expand allowable uses for the Small Business Administration’s 7(a) loans to permit payroll support, including paid sick leave, supply chain disruptions, employee salaries, mortgage payments, and other debt obligations to provide immediate access to capital for small businesses that have been impacted by COVID-19. Speaker Pelosi and Democratic Leader Schumer responded by calling for a plan that would also address health care infrastructure and include new provisions to protect workers and prevent recipients of funding from rewarding executives. They concluded by stating, “We look forward to working in a bipartisan way to deliver for the American people as soon as humanly possible.” This third bill is likely to proceed quickly through the Congress. Learn More >> 

3. Banks and Credit Unions Helping Customers and the Economy, Associations Write in Letter to Senate

On Tuesday, banking and credit union associations sent a joint letter to Senate Banking Committee Democrats responding to their inquiry regarding actions banks and credits unions are taking to assist customers, members, consumers and financial institution employees impacted by the recent spread of the coronavirus. “Banks and credit unions are well positioned to assist their customers and members and many are offering a variety of services to individual borrowers and small business owners, including but not limited to fee waivers; deferred payments for credit cards, auto loans and mortgages; loan modifications; low-rate and zero-rate loans and other accommodations,” the associations wrote in their letter. The letter also identified efforts that banks and credit unions are taking to help customers utilize mobile and digital banking platforms, as well as to execute business continuity plans to ensure the financial system can continue to play its critical role in the economy. Learn More >>

4. Your Money is Safe Inside a Bank

Americans’ money is safest inside a bank, and customers will continue to have access to funds throughout the coronavirus response. In a press release issued Wednesday, the FDIC reminded Americans that “insured banks remain the safest place to keep their money. Since 1933, no depositor has ever lost a penny of FDIC-insured funds.” Banks are continuing to meet the needs of customers through open branches, branch appointments and drive-through windows. Customers can also access money and cash through ATM, mobile or online banking services. Learn More >>

5. FDIC Issues NPR on ILC Regulation and Supervision and Approves Square and Nelnet Bank Applications

On March 17, the FDIC issued an NPR setting forth a formal regulatory and supervisory framework for the parent companies of ILCs. Over the course of the weekend prior, BPI joined with the Leadership Conference on Civil and Human Rights, Independent Community Bankers of America, National Association for the Advancement of Colored People, and Center for Responsible Lending to submit a letter to the FDIC asking that the agency halt consideration of ILC deposit insurance applications pending the finalization of the NPR, along with asking the FDIC to hold public hearings for all pending ILC applications. This letter heavily echoed the letter sent by HSFC Chairman Waters on March 13. Despite these efforts, on March 18, the FDIC approved two ILC applications for deposit insurance: Square Financial Services and Nelnet Bank. Learn More >>


In Case You Missed It

OCC Announces Morris Morgan Retirement, Brian Brooks as New Deputy Comptroller 

On Monday, the OCC announced that Brian Brooks will become its next First Deputy Comptroller and Chief Operating Officer. Brooks comes to the OCC from the digital currency platform Coinbase, where he served as Chief Legal Officer, and prior to that from the position of General Counsel at Fannie Mae, in addition to executive positions at OneWest Bank and O’Melveny & Meyers LLP. Brooks will replace current Deputy Comptroller Morris Morgan, who previously announced his decision to retire at the end of the month, effective April 1.

FHFA to Suspend Evictions, Foreclosures Due to COVID-19 Outbreak 
On Wednesday, the Federal Housing Finance Agency (“FHFA”) announced the suspension of evictions and foreclosures on Fannie Mae- and Freddy Mac-backed mortgages for at least 60 days in light of the COVID-19 crisis, which was declared a national emergency last Friday by President Trump. The suspension, said FHFA Director Mark Calabria in a Wednesday statement, will “allow homeowners to stay in their homes” during the outbreak. He added that Fannie and Freddie are “working with mortgage servicers to ensure that borrowers facing hardship because of the coronavirus can get assistance,” and encouraged affected borrowers experiencing difficulty with mortgage payments to “reach out to their mortgage servicers as soon as possible.”

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