COVID-19 UPDATES
Quarles Praises Industry Performance During Pandemic in Senate Testimony
The financial industry entered the coronavirus pandemic in a position of strength and has continued to support lending to businesses and households throughout the crisis, Federal Reserve Vice Chairman for Supervision Randal Quarles will tell members of the Senate Banking Committee today. In prepared testimony released ahead of this morning's virtual oversight hearing, Quarles noted that the reforms made after the 2008 financial crisis helped to ensure that "banking organizations are well-positioned to serve as a source of strength, not strain, in the current crisis."
Quarles highlighted several ways that banks—supported by a number of actions by the Fed and other agencies—have provided credit to borrowers, absorbed new deposits from households and businesses and managed an increase in transactions from investors responding to market volatility, "and as a conduit for official-sector support, they have helped stabilize the financial system and restore market function."
He added that banks will continue to play a critical role as they continue to work constructively with their customers that may be facing prolonged financial hardship as the pandemic continues. "Financial institutions now have an essential part to play in addressing that disruption—as a bridge between the start of this crisis and the completion of our economic recovery."
Fed Issues Municipal Liquidity Facility Updates
The Federal Reserve Board has published updates to the Municipal Liquidity Facility term sheet to provide pricing and other information. Separately, the New York Fed issued frequently asked questions on the program, which will offer up to $500 billion in lending to states and municipalities to help manage cash-flow stresses caused by the coronavirus pandemic.
CFPB Finalizes Changes to Remittance Rule
The Consumer Financial Protection Bureau yesterday finalized several changes to its remittance rule, including one that will permanently allow depository institutions to estimate certain fees and exchange rates when making disclosures to their customers about the cost of remittance transfers. The final rule takes effect July 21, 2020, just as a temporary provision of the rule which allowed institutions to estimate these rates and fees is set to expire. Without this important change, many banks would have been prevented from sending remittances to certain countries.
The final rule will also increase the threshold for identifying which banks are subject to the remittance rule’s requirements. Under the final rule, institutions submitting 500 or fewer remittance transfers annually will not be considered remittance providers for the purposes of the rule, up from a previous threshold of 100 remittances or fewer.
This change is expected to affect nearly 400 banks and will ensure that institutions that process a smaller volume of remittances can remain in the market. The CFPB estimated that while the change will affect a very small percentage of the market—less than 0.06% of all remittances—it will significantly reduce the regulatory burden for community banks.
SBA Codifies Extensions for PPP Safe Harbor, Form 1502 Filing
The Small Business Administration late Friday issued an interim final rule making technical changes related to the safe harbor for firms that have access to other sources of capital to repay Paycheck Protection Program loans. The rule implements an extension announced by SBA early last week. Borrowers who applied for PPP loans prior to April 24, 2020, who repay their loan in full by May 14, 2020, will be deemed by SBA to have made the required certification of economic need in good faith.
SBA also extended the deadline for lenders to file the yet-to-be released Form 1502 in order to receive their lender processing fees. As SBA previously announced, lenders must file Form 1502 within 20 calendar days after the PPP loan is approved. For loans approved before Form 1502 is made available, the form must now be filed by May 22.
As of the end of the day on May 8, SBA had approved 2.6 million round two PPP loans amounting to $189 billion, up approximately $4 billion from the total approved on Thursday. Of that total, approximately 1.2 million loans were made by lenders with over $50 billion in assets, 363,000 by lenders with $10 billion to $50 billion in assets, and 973,000 by lenders with under $10 billion. The average loan size for round two was $73,000.
SBA also provided a breakdown of loans made by state or U.S. territory and by loan size. It also provided information on loans made by community development financial institutions and minority depository institutions, as well as nonbank lenders and credit unions.
Read IBA press release on PPP data
ACTION ALERT: Help Farmers by Asking Congress to Pass the ECORA Act
Crop and livestock prices have tumbled due to the COVID-19 pandemic, and farmers in our state are hurting. As their income declines, ag producers – now more than ever – need help in acquiring credit to help them deal with the pandemic’s impact on the industry.
Contact your lawmakers today and ask them to make the ECORA Act part of the next COVID-19 relief package. The ECORA (Enhancing Credit Opportunities in Rural America) Act will lower the cost of credit for farmers by removing the taxation on income from farm real estate loans made by banks. ECORA would provide greater access to credit and reduce borrowing costs for ag producers. Hoosier farmers are critical components of the supply chain that helps all Americans, and they should continue to be a top priority to ensure they have the capital they need to continue farming.
IRS: 130M Economic Impact Payments Distributed to Americans
A total of 130 million Americans received economic impact payments totaling more than $200 billion within the first four weeks of the program, according to updated data released by the IRS last week. The data included a breakdown of EIPs issued by state, as well as the total number and amount of EIPs sent to individuals with foreign addresses. The IRS is expected to deliver a total of 150 million payments to eligible individuals and households in the coming days as authorized by the CARES Act.
Fed: Banks Entered Coronavirus Pandemic in Strong Condition
The nation’s banks “entered the current crisis well positioned to support continued lending” during the pandemic, the Federal Reserve indicated in its supervision and regulation report on Friday. The Fed noted that bank capital and liquidity positions were strong before the coronavirus outbreak began, enabling them to absorb higher credit losses, continue lending, and meet their obligations to creditors while meeting the needs of households and businesses.
The Fed highlighted the significant operational challenges banks are now facing as they work to comply with state and local social distancing measures, such as lobby restrictions, reduced hours or drive-through-only operations. The report also noted that bank profits fell sharply in the first quarter, driven primarily by a substantial increase in loan loss provisions. Bank capital levels declined from high pre-pandemic levels, driven by increases in risk-weighted assets, while strains in funding markets have lessened since late March, leading to more stable liquidity conditions.
In response to the crisis, the Fed enacted a number of regulatory changes aimed at maintaining the flow of credit to household operations and to ease operational burdens for banks, including: encouraging the use of capital liquidity buffers to meet credit needs; delaying the capital impact of CECL; temporarily lowering the community bank leverage ratio requirement; and encouraging firms to participate in several newly established liquidity facilities. With regard to supervision, Fed regulators continue to encourage banks to work constructively with customers facing financial hardships while maintaining safety and soundness, the report indicated.
Agencies Finalize Statement on Allowance for Credit Losses, Credit Risk Review Systems Guidance
The financial regulatory agencies on Friday issued a final interagency policy statement on determining allowances for credit losses under the current expected credit loss methodology. The statement – which takes effect at the time of each institution’s adoption of CECL – describes the CECL methodology for determining allowances for credit losses applicable to financial assets measured at amortized costs, including loans held-for-investment, net investments in leases, held-to-maturity debt securities and certain off-balance sheet credit exposures.
The agencies also finalized guidance on credit risk review systems to reflect the new CECL standard. The guidance reaffirms the elements of an effective credit risk review system, including qualifications and independence of credit risk review personnel, among other provisions. It also reiterates the importance of ensuring that employees involved with assessing credit risk are independent from the lending function.
ICYMI - CFPB Compliance Aid Clarifies ECOA Notification Obligations for PPP Loans
The Consumer Financial Protection Bureau last Wednesday published a compliance aid to provide additional clarity regarding banks’ obligations under the Equal Credit Opportunity Act with regard to borrowers who have applied for a Small Business Administration Paycheck Protection Program loan.
Under ECOA, banks must notify credit applicants with an approval, counteroffer, denial or other adverse notice within 30 days of receiving a completed application. The CFPB clarified that PPP loan applications are only considered completed applications once the creditor receives a loan number from the SBA or a response about the availability of funds.
The CFPB also noted that if a creditor receives a PPP loan application and refuses to grant the credit request without ever submitting the PPP loan to the SBA, they must provide an adverse action within 30 days after taking the adverse action. Finally, CFPB confirmed that a creditor that has gathered sufficient data from an applicant for a credit decision but has not received a loan number or response from the SBA may not deny the application based on incompleteness.
ICYMI - IRS Updates FAQs to Address Payments to Deceased, Other Non-Eligible Recipients
The IRS updated its FAQs on the CARES Act economic impact payments to reflect that the deceased (as well as heirs receiving payments in their name), non-resident aliens and incarcerated individuals are not eligible to receive EIPs and must return them. The obligation to return funds is on the ineligible recipients, not on banks.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.