Top of the Agenda
$2 Trillion Coronavirus Stimulus Package Signed into Law
On Friday, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act following the passage of the legislation in the House earlier in the day, and a unanimous vote by the Senate on Thursday evening. The bill includes $350 billion in Small Business Administration 7(a) loans and increases the maximum amount of such loans from $350,000 to $1 million through the end of the calendar year. The bill also provides the U.S. Treasury Department’s Exchange Stabilization Fund with $500 billion, which the Federal Reserve can then leverage to support various markets, including municipalities. Late changes to the bill created an independent inspector general and congressional oversight panel to oversee the fund. The CARES Act provides temporary relief from troubled debt restructurings (TDR) and permits insured depository institutions to delay implementing CECL. Read More >>
5 Stories Driving the Week
1. Federal Reserve Provides Guidance to Financial Institutions on Supervisory Approach During COVID-19 Crisis
On March 24, the Fed released a statement on supervisory activities in light of COVID-19. The statement builds upon the agency’s March 9 and March 22 releases encouraging financial institutions to work with customers impacted by COVID-19, and notes that it is decreasing planned supervisory activities to allow institutions to deploy their resources more efficiently to do so. The key highlights from the statement include:
Changed Focus on Examinations — Generally, the Fed is reducing the focus on examinations and inspections, and all related activities will be conducted off-site. For institutions with less than $100 billion in assets, regular examination activity is ceased “except where the examination work is critical to safety and soundness or consumer protection, or is required to address an urgent or immediate need” and will be reassessed the last week of April. Examination reports may still be received for recently completed exams or exams near completion. For institutions with more than $100 billion in assets, a “significant portion of planned examination activity” will be deferred based on the burden to the institution and the importance of the exam to firms, consumers and financial stability.
CCAR — Firms are still required to submit capital plans by April 6, which will be used to “monitor how firms are managing their capital in the current environment, planning for contingencies, and positioning themselves to continue lending to creditworthy households and businesses.”
Extended Time Periods for Remediation of Supervisory Findings — The time period for remediating supervisory findings has been extended by 90 days, “unless the Federal Reserve notifies the firm that a more timely remediation would aid the firm in addressing a heightened risk or help consumers.“
Working with Customers — The statement reiterates the March 22 guidance on TDRs and loan modifications, noting that the Fed will not criticize institutions that “mitigate credit risk through prudent actions that are consistent with safe and sound practices.”
Increased Focus on Monitoring — The Fed notes it is focusing more significantly on monitoring and analysis of “operations, liquidity, capital, asset quality, and impact on consumers” for all institutions. Large financial institutions will be monitored for operational resiliency and impacts on broader financial stability.
2. Federal Reserve Enacts Aggressive Emergency Actions and Powell Emphasizes “Nothing Fundamentally Wrong with Our Economy”
On March 23, the Federal Reserve announced that it would be implementing a range of aggressive actions to respond to economic agitation resulting from the COVID-19 health crisis, stating that the measures will help to minimize economic disruptions and continue to boost credit availability for households and businesses. The Fed will establish two new credit facilities to acquire corporate debt and a third facility under which the Fed will lend to third-parties to finance their purchases of newly issued asset-backed securities collateralized by student loans, auto loans, credit card loans, SBA guaranteed loans, and other loans. The Fed also pledged to increase its purchases of Treasury securities and mortgage-backed securities and improve credit availability to municipalities through the expansion of the Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility.
Later in the week, the Federal Reserve Chair Jerome Powell appeared on NBC’s “Today Show” optimistic about the resiliency of the U.S. economy and the Federal Reserve’s response to the crisis, stating “[w]hen it comes to this lending, we’re not going to run out of ammunition, that doesn’t happen.” Powell committed to continuing the Fed’s bond-buying program and emphasized that although the economy may be entering a recession, “there’s nothing fundamentally wrong with our economy.” Learn More >>
3. Agencies Provide Additional Information to Encourage Financial Institutions to Work with Borrowers Affected by COVID-19
On March 22, the federal banking agencies, NCUA and Conference of State Bank Supervisors issued important guidance on troubled debt restructurings (TDRs). The guidance provides clarity that short-term modifications on loans to borrowers impacted by COVID-19 need not trigger TDR treatment. In particular, the accounting guidance contained in the release, which was confirmed with FASB, provides that:
The agencies have confirmed with staff of the Financial Accounting Standards Board (FASB) that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs… For modification programs designed to provide temporary relief for current borrowers affected by COVID-19, financial institutions may presume that borrowers that are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program.
The release also notes that financial institutions are not expected to designate a loan with a deferral granted due to COVID-19 as past due, absent another reason for doing so. Furthermore, “each financial institution should refer to the applicable regulatory reporting instructions, as well as its internal accounting policies, to determine if loans to stressed borrowers should be reported as nonaccrual assets in regulatory reports. However, during the short-term arrangements discussed in this statement, these loans generally should not be reported as nonaccrual.” Importantly, the release indicates that agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.
Lastly, the agencies note that loans that have been restructured pursuant to the guidance are eligible for a pledge to the discount window. Learn More >>
4. Department of Homeland Security and U.S. Department of Treasury Affirm Financial Services Workers as ‘Essential Workers’
5. Merchants Unsuccessfully Lobby to Expand Interchange Price Fixing
In Case You Missed It
Federal Agencies Issue Statement Encouraging Small-Dollar Lending to Businesses and Consumers
OCC Revises Short-Term Investment Fund Rule
Federal Reserve Board Announces Technical Change to Support the U.S. Economy and Encourage Prudent Lending
Rakuten Announces Withdrawal of FDIC Application for Deposit Insurance
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