March 20, 2020

Agencies: Banks Can Use Capital, Liquidity Buffers To Meet Coronavirus Challenges

The Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a statement calling on banks to use their capital and liquidity buffers to help meet the needs of households and businesses as the coronavirus pandemic continues. The agencies noted that banks have “built up substantial levels of capital and liquidity in excess of regulatory buffers and minimums” in the years since the financial crisis.
 
“The agencies support banking organizations that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner,” the statement said. “The agencies expect banking organizations to continue to manage their capital actions and liquidity risk prudently.”
  
The agencies also issued an interim final rule to facilitate the use of capital buffers to bolster lending. The rule, which takes effect upon publication in the Federal Register, revises the definition of eligible retained income for all depository institutions, bank holding companies and savings and loan holding companies subject to the agencies’ capital rule. The revised definition of eligible retained income will make any automatic limitations on capital distributions that could apply under the agencies’ capital rules more gradual.

The federal banking agencies also issued a Q&A document addressing several questions they have fielded about the statement and an associated interim final rule. The Q&As address the following.

• the meanings of a liquidity buffer and a capital buffer
• implications of draws on the discount window for the Liquidity Coverage Ratio
• the intersection of the statement on buffers with recovery or resolution plan triggers
• the application of the statement to total loss-absorbing capacity 

OCC, FDIC Issue Guidance For Banks Closing Branches Due To Coronavirus

 The Office of the Comptroller of the Currency issued guidance for banks that may need to temporarily close or otherwise restrict access to a facility because of staffing issues or other precautionary measures related to the coronavirus pandemic. The agency directed banks in these cases to notify their supervisory office and their customers about the closure and to communicate the availability of alternative service options “as soon as practical.”
 
The OCC also encouraged banks to work constructively with borrowers and others affected by the virus in their communities. The agencies emphasized that “prudent efforts to modify the terms on existing loans for affected customers should not be subject to examiner criticism.” Such efforts could include extending repayment terms, restructuring existing loans or easing terms for new loans.
 
The Federal Deposit Insurance Corporation also issued its own statement encouraging banks to work with customers in accordance with safe and sound banking practices. The agency said it would work with state regulatory agencies to expedite requests to open temporary facilities for banks that may be facing operational challenges. "In most cases, a telephone notice to the FDIC or state authority will suffice to start the approval process, with the necessary written notification being submitted shortly thereafter," the FDIC said.

Fed Drops Rates To Zero, Announces Further Actions To Support Economy

Underscoring the serious threat that the coronavirus pandemic poses to the global economy, the Federal Reserve took emergency action earlier this week to support the economy and the credit needs of households and businesses.

The Federal Open Market Committee voted to reduce the federal funds rate by 100 basis points to a range of zero to 25 basis points. “Available economic data show that the U.S. economy came into this challenging period on a strong footing,” the FOMC said, but “[t]he effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook.”

The FOMC said that it expects to maintain its near-zero 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.” The FOMC also said it would resume asset purchases, increasing its holdings of Treasurys by at least $500 billion and of agency mortgage-backed securities by at least $200 billion in coming months.

Fed Details Actions To Support Business, Household Credit Needs

To help address credit challenges in light of the pandemic, the Fed lowered the primary credit rate paid by institutions using the discount window, encouraged banks to use intraday credit from the reserve banks and cut reserve requirement ratios to zero, effective March 26.

Noting that U.S. banking firms “have built up substantial levels of capital and liquidity in excess of regulatory minimums and buffers,” the Fed also encouraged banks to use their capital and liquidity buffers to lend to coronavirus-affected borrowers. “The Federal Reserve supports firms that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner,” the Fed said. The Fed and five other central banks also said they would ease strains in global funding markets through standing U.S. dollar liquidity swap line arrangements.

Fed Unveils New Commercial Paper, Primary Dealer Credit Facilities

To help ensure the continued flow of credit to households and businesses and support smooth market functioning, the Federal Reserve announced it will establish new facilities for commercial paper funding and primary dealer credit using its authority under Section 13(3) of the Dodd-Frank Act.

The Fed's commercial paper funding facility will provide a liquidity backstop to U.S. issuers of commercial paper, which finances a range of economic activity, including the operational needs of companies, by allowing the Fed to purchase unsecured and asset-backed commercial paper directly from eligible companies. The U.S. Treasury will provide $10 billion of credit protection to the Fed in connection with the CPFF from the Treasury’s Exchange Stabilization Fund.
 
The Fed also announced a new primary dealer credit facility, which starting today (March 20) will offer overnight and term funding with maturities up to 90 days. The PDCF will be available for at least six months and may be extended. Collateral for credit extended through the PDCF may include a broad range of investment-grade debt securities and equity securities.

Fed Creates Liquidity Facility For Money Market Funds

As part of its policy response to the market turmoil triggered by the coronavirus pandemic, the Federal Reserve announced a new Money Market Mutual Fund Liquidity Facility. Through the MMLF, the Federal Reserve Bank of Boston will lend to financial institutions secured by high-quality assets purchased by the institution from MMFs. Any depository institution, U.S. bank holding company or U.S. branch or agency of a foreign bank is eligible to participate.

Eligible collateral will include Treasurys, agency securities and qualifying asset-backed or unsecured commercial paper from U.S. issuers. A term sheet specified that the banking agencies will “act to fully neutralize the impact of a depository institution holding company or depository institution’s participation in the facility for purposes of regulatory capital requirements” by fully exempting from risk-based capital and leverage requirements any assets pledged to the MMLF or purchased from an MMF starting March 18 and intended to be pledged to the MMLF.

The Fed’s move came as MMFs, usually viewed as a safe, cash-like investment vehicle, saw increasing demand for redemptions by households, businesses and other investors, causing strain in the MMF market, according to news reports. The Treasury Department said it will support the MMLF with $10 billion worth of credit protection from its Exchange Stabilization Fund.

SBA Streamlines Criteria For States Requesting Disaster Assistance Loans 

In response to the coronavirus pandemic, the Small Business Administration revised its criteria for states or territories seeking an economic injury declaration. This action will create a faster, easier qualification process for states seeking SBA disaster assistance as a result of the pandemic while expanding statewide access to SBA disaster assistance loans, which offer up to $2 million for each affected small business.
 
Specifically, states or territories will only be required to certify that at least five small businesses within the state or territory have suffered substantial economic injury, regardless of where those businesses are located. SBA will make disaster assistance loans available statewide following an economic injury declaration. This will apply to current and future disaster assistance declarations related to the coronavirus.

FinCEN Issues Statement On BSA Reporting, Illicit Activity In Wake Of Coronavirus

 The Financial Crimes Enforcement Network reminded banks to communicate promptly with FinCEN and their primary regulator if they experience delays in filing Bank Secrecy Act reports because of the coronavirus pandemic.

FinCEN also urged banks to be on alert for potential scams or fraudulent transactions connected to COVID-19. The agency said it has identified several emerging trends related to imposter scams, investment scams, product scams and insider training as concerns about the coronavirus have intensified.

ABA, Banking Groups Detail COVID-19 Response In Senate Letter

In a letter to several Democratic members of the Senate Banking Committee, the American Bankers Association and other financial trade groups detailed what the banking industry is doing to help customers, communities and the broader economy through the coronavirus crisis.
 
“At this time of significant challenge to the nation, we can report that the American financial system is strong and resilient,” the groups said. “Banks and credit unions across the country stand ready to support their customers and members and are working to help those affected.”
 
Actions taken by financial institutions have included fee waivers, deferred payments, loan modifications and emergency low-rate and zero-rate loans. Banks and credit unions also are helping customers fully employ mobile and online banking platforms, as well as donating to public health relief and response efforts, the groups said. The letter also detailed actions taken to assist bank and credit union employees.

ABA Supports Relief Bill For Small Businesses Affected By Coronavirus 

The American Bankers Association supports legislation to ensure that small businesses can continue to access much-needed capital as they weather the economic effects of the coronavirus pandemic. The Immediate Measures to Protect Against COVID-19 Threats for Small Businesses Act of 2020 would allow the U.S. Small Business Administration to provide a 90% loan guarantee for all loans, increase the loan limit of SBA Express to $1 million and waive fees for all 7(a) loans for one year for both borrowers and lenders. 
 
“Banks of all sizes stand ready to support the customers and communities they serve as well as the broader economy and help the nation overcome the challenge of the COVID-19 pandemic,” ABA said. “This important and timely legislation ensures our nation’s small businesses will have continued access to capital in a time of potential economic crisis.”

GSEs, HUD To Suspend Foreclosures Amid Coronavirus Pandemic

To help provide relief to homeowners who may be facing financial hardships as a result of the coronavirus pandemic, the Federal Housing Finance Agency announced it has directed Fannie Mae and Freddie Mac to suspend foreclosures and evictions for at least 60 days for enterprise-backed single-family mortgages.
 
This announcement follows action by FHFA earlier this month to provide payment forbearance for affected borrowers, allowing them to suspend mortgage payments on mortgages backed by Fannie and Freddie for up to 12 months.
 
The Department of Housing and Urban Development also announced it would suspend foreclosures and evictions for all Federal Housing Administration-guaranteed loans until the end of April.

Treasury Issues Guidance To Extend Tax Payment Deadline For 90 Days

The IRS issued a notice that taxpayers may defer their payments that would have otherwise been due April 15 for up to 90 days. The IRS noted, however, that while payments are deferred, original tax filing dates remain in place, subject to filing extensions.
 
Under this action, individual taxpayers, including pass-through entities which are taxed as individuals, may defer paying up to $1 million in tax due while corporations may defer up to $10 million. No penalties will be assessed against the deferred payments.

ABA Supports Bill To Help Community Banks Support Customers Amid Pandemic

The American Bankers Association expressed support for legislation designed to facilitate community banks’ supporting their customers and ensuring daily operations during the coronavirus pandemic. The Community Bank Regulatory Relief Act would lower the community bank leverage ratio to 8% from the current level of 9% and delay the implementation of the current expected credit loss standard until December 2024 for community banks.
 
“We welcome Sen. Cramer’s proposal, which will allow community banks to stay focused on assisting their customers and communities at this difficult moment for the nation,” said ABA President and CEO Rob Nichols. “We urge the Congress to give Sen. Cramer’s measure strong consideration as part of any broader effort to support the U.S. economy.” 

FDIC Warns Consumers Of Scams In Connection With Coronavirus

In response to recent scams connected to the coronavirus pandemic, the Federal Deposit Insurance Corporation issued a statement reminding consumers that FDIC-insured banks remain the safest place to keep their money. FDIC emphasized that “since 1933, no depositor has ever lost a penny of FDIC-insured funds.” 
 
FDIC also highlighted its Electronic Deposit Insurance Estimator, a tool that can be used to determine deposit insurance coverage based on the accounts they may already have with a bank or accounts they are considering opening.