BPInsights: May 09, 2020

BPInsights: May 09, 2020

Top of the Agenda

Data Demonstrates Large Banks Have Supported Smallest Businesses Through PPP Lending

Large banks have supported the smallest businesses through lending according to newly released data from a BPI survey of the nine largest retail banks. The results are based on originations from the first and second rounds of the PPP and include data on the average loan size and the number of employees of the small businesses served.

  • The average loan size was $115,000 (smaller than the program average of $130,000);
  • 64 percent of loans were for amounts under $50,000;
  • 51 percent of all loans went to businesses with fewer than 5 employees;
  • 75 percent of all loans went to businesses with fewer than 10 employees; and
  • 98 percent of loans went to businesses with less than 100 employees.

Additionally, banks with $10 billion or more in assets processed 68% of all PPP loans during the start of the second round. That’s estimated to be about $24 billion in loans per day and is a significant increase from first-round funding, according to Bloomberg reporting on data obtained from the Small Business Administration. These findings demonstrate the enormous effort underway by large banks to meet the needs of consumers, as bank team members work through the night to process loans and small businesses continue to receive the necessary funding to keep their doors open and care for their employees. Learn More >>

 

5 Stories Driving the Week

Fintech Startup, Lendio, Hangs Small Businesses Out to Dry Waiting for PPP Lending

Many small businesses that sought Paycheck Protection Program loans through a fintech online lending marketplace, Lendio, are still waiting for relief to arrive, according to a recent Politico report. Lendio accepted loans on behalf of applicants before sending loans off to third-party lending partners, who then processed applications through the SBA for approval. One lending partner, Ready Capital, told borrowers that they were approved for loans back in mid-April, but a large percentage of these loans have yet to be funded. The company has provided limited updates and slow responses due to extreme call and email volume, according to the report. In the meantime, the only thing these struggling small businesses can do is wait. Learn More >>

 

BPI Recommends Changes to Main Street Lending Facility Term Sheet to Encourage Participation

On May 5, BPI filed a comment letter with the Board of Governors of the Federal Reserve System presenting five recommendations to the updated term sheets for the Main Street Lending Program. The letter acknowledges the challenges associated with designing a program that maximizes access while also protecting the interests of the taxpayer, and the recommendations are intended to promote these objectives while also alleviating over-restrictive conditions that could discourage participation. The recommendations include:

  1. Revising the provisions for the Main Street Priority Loan Facility (MSPLF) to more closely align with the Main Street New Lending Facility (MSNLF) with regard to priority while maintaining the flexibility on leverage, the ability to refinance and the increased risk retention;
  2. Permitting the use of either adjusted earnings before interest, taxes, depreciation and amortization (EBTIDA) existing in credit documentation or internal methodologies for purposes of setting the maximum loan amount, while making clear that EBITDA used in any underwriting decision or Main Street loan documentation may be different to that which has previously been used with regard to the existing borrower or similarly situated borrower;
  3. Modifying the four-year term-to-maturity requirement to allow for shorter-dated program loans;
  4. Modifying the Main Street Expanded Loan Facility (MSELF) hold to maturity requirement in relation to the underlying loan; and
  5. Modifying debt repayment restrictions to allow for amendments to non-program debt, permit payments on pre-existing contractually triggered debts, allow borrowers to continue using revolving lines of credit, allow borrowers to make “catch-up” payments on previously missed obligations, and extend the refinancing exceptions outlined in the MSPLF to the MSNLF and MSELF.

To read the comment letter, please click the “Learn More” link below. BPI filed a more detailed and technical supplemental comment letter on May 8, which can be found hereLearn More >>

 

Fed Supervision and Regulation Report Reiterates Strength and Resiliency of Banks

The Federal Reserve released its May 2020 Supervision and Regulation Report on May 8, a semiannual report that describes the resiliency of the banking sector and summarizes recent regulatory developments and supervisory activities being performed by the agency. The report indicated that banks came into 2020 very well capitalized, holding significant amounts of liquidity and improved risk-management capabilities. It also noted that deposit and loans balances grew significantly in the first quarter and capital levels declined slightly driven primarily by increases in risk-weighted assets. In addition, first quarter earnings declined due to higher provisions driven by the implementation of the current expected credit loss methodology combined with considerably weaker economic forecasts. Meanwhile, strains in funding markets eased but banks are still facing significant operational challenges as a result of governmental containment measures. Learn More >>

 

Class Action Lawsuit Alleges Fintech Saved, Stored and Profited from User Bank Account Data

Data from at least 200 million bank accounts were discreetly harvested by Plaid — a fintech middleman and aggregator that powers third-party consumer applications by collecting financial data from multiple accounts — according to a new class-action lawsuit filed in the U.S. District Court for the Northern District of California. According to the plaintiffs and detailed in a report published by Law360, Plaid’s deceptive practice of matching the look and feel of login pages to a customer’s bank provider “lulled [consumers] into a false sense of security,” resulting in customers unknowingly providing user account credentials to Plaid. Data obtained from customer bank accounts was then reportedly sold to Venmo — a peer-to-peer payment company owned by PayPal — and other third-party services, which then used the data to predict user spending habits and offer related services and products.

Banks take the privacy and security of consumer data seriously and have decades of experience complying with rigorous data security and privacy laws. Once consumers authorize third-party fintechs to obtain access to their bank account by providing credentials, aggregators often store these credentials and use them repeatedly to collect, save and share data from the consumer’s account. These claims reiterate the importance of implementing many of the policy positions advocated for by BPI, including applying the same safeguards and standards that banks must meet to fintech aggregators and other fintech providers. Learn More >>

 

Bank of England Announces Capital, Regulatory Changes to Provide Relief for COVID-Related Uncertainty

The Bank of England Prudential Regulatory Authority (PRA) announced changes to Pillar 2A capital requirements on May 7 as part of a series of new measures the agency is implementing to provide relief to U.K. firms navigating COVID-related economic uncertainty. The PRA will now set Pillar 2A capital requirements as a nominal amount for the 2020 to 2021 Supervisory Review and Evaluation Process, as opposed to setting requirements based on a percentage of risk-weighted assets. The change will result in a reduction of both Pillar 2A capital requirements and the overall capital threshold that banks are required to maintain to avoid restrictions on distributing earnings.

In addition to changes to capital requirements, the PRA and the Financial Policy Committee agreed to postpone climate-related stress tests until at least mid-2021.

The changes to capital requirements and postponement of the climate-related stress tests will be included in the newly launched Grid also announced on May 7 by the Financial Services Regulatory Initiatives Forum. The Grid lays out the planned timetable for major initiatives — including the transition from LIBOR and the introduction of financial services legislation to prepare for the end of the EU withdrawal transition period. Learn More >>

 

In Case You Missed It

Banking Agencies Extend Deadline for Upcoming Resolution Plans

On May 6, the FDIC and Fed jointly announced the deadline extensions for two upcoming resolution planning deadlines. Resolution plans, often referred to as “living wills,” are required to help facilitate the orderly unwind of an institution during a bankruptcy. Barclays, Credit Suisse, Deutsche Bank and UBS, along with all large foreign and domestic banks in Categories II and III, will now have until September 29, 2021 to submit their resolution plans, an extension of 90 days from the previous deadline. The deadlines for the eight U.S. globally systemically important banks (GSIBs) will remain unchanged and are due on July 1, 2021.


BoE, PRA Make Changes to Resolution Measures in Light of COVID-19

On Thursday, the Bank of England and Prudential Regulation Authority (PRA) announced changes to deadlines for certain resolution measures, seeking to ease operational burdens for firms in light of the COVID-19 crisis. The announcement extends the dates by which major UK firms must submit the first reports on their preparations for resolution under the resolvability assessment framework and publicly disclose a summary of those reports, to October 2021 and June 2022, respectively. Similarly, the deadline to comply with the Bank of England’s Statement of Policy on valuation in resolution has been extended by three months to April 1, 2021, though the announcement notes that compliance deadlines for other resolvability-related Statements of Policy remain unchanged. Firms will also not be required to submit certain resolution pack information under the PRA’s “Resolution Planning” supervisory statement until the end of 2022.


FFIEC Issues Statement on Cloud Computing and Security Risk

The Federal Financial Institutions Examination Council (FFIEC) issued a statement on May 1 on the topic of cloud computing services and security risk management principles. In the statement, the agency emphasized that while firms may choose to store data and business applications in a third-party cloud environment, those firms should not presume that the appropriate security measures are in place. The FFIEC emphasized the importance of implementing additional security measures to maintain the appropriate security and resiliency controls necessary to protect consumer financial data and — consistent with the standards already in place by many banks pertaining to third-party vendors — encouraged firms to perform ongoing oversight and monitoring.


BPI Comments on OCC’s Proposed Amendments to Rules Governing National Bank Licensing and Regulatory Approvals

On May 4, BPI submitted a letter to the Office of the Comptroller of the Currency in response to the agency’s request for comment on the OCC’s rules relating to policies and procedures for corporate activities involving national banks and federal savings associations in 12 C.F.R. Part 5. BPI generally supports the OCC’s proposed changes, which are intended to update and clarify policies and procedures, eliminate unnecessary requirements consistent with safety and soundness, and make other technical and conforming changes.

In particular, the comment letter agrees with the OCC’s proposals that would reduce regulatory burden for national bank branch relocations, OCC review of business combinations and filings related to operating subsidiaries and equity investments of national banks, among other things. Consistent with BPI advocacy, the letter also argues that the OCC should reform the use of “well managed” status which serves as an eligibility requirement for various regulatory approvals. The letter specifically recommends conforming eligibility and review criteria under Part 5 to a single standard, except as otherwise required under applicable law, that takes into account the safety and soundness criteria that are most relevant to the activity at hand and that is not conditioned on any single CAMELS component rating (such as a Management) or a consumer compliance rating of at least 2.


Federal Reserve Finalizes 18-Month Extension for Certain SCCL Compliance Dates

On May 1, the Federal Reserve finalized an 18-month extension of initial compliance dates for its single-counterparty credit limits (SCCL) rule for foreign banking organizations (FBOs) at the level of their consolidated U.S. operations (CUSO). The extension, which comes in response to several foreign jurisdictions not yet having finalized their SCCL standards, extends initial compliance dates for the largest FBOs to July 2021 and to January 2022 for other covered FBO institutions. The SCCL rule allows an FBO to satisfy its CUSO-level requirements by complying with rules established by its home country supervisor, as long as those rules are consistent with the Basel Committee’s large exposures framework. The extension will allow additional FBOs to take advantage of this “substituted compliance regime” as their home country supervisors are in the process of finalizing and implementing their own Basel-compliant SCCL frameworks.

 

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