COVID-19 UPDATES
SBA Releases Borrower Application, Instructions for PPP Loan Forgiveness
The Small Business Administration and Treasury Department last week released the application that borrowers must complete in order to have their Paycheck Protection Program loans forgiven. The form includes detailed information about the costs that are eligible for forgiveness and instructions for calculating those costs.
SBA announced several measures intended to reduce compliance burden and simplify the forgiveness process for borrowers, including a safe harbor from loan forgiveness reduction for borrowers that were able to rehire employees who had previously been let go or laid off by June 30, 2020. It also included an exemption from forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined.
Additionally, SBA provided an option for borrowers to calculate payroll costs using an "alternative payroll covered period" that aligns with their regular payroll cycles, and flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan.
SBA noted that it will soon issue regulations and additional guidance for borrowers on completing the forgiveness form, as well as guidance for lenders detailing their responsibilities.
Powell: Fed Could Further Tweak Main Street Lending Program 'As We Learn More'
In testimony published ahead of today’s Senate Banking Committee hearing, Federal Reserve Chairman Jerome Powell noted that "public input has been crucial" in the agency’s development of the Main Street Lending Program and that additional changes to the program may be forthcoming "as we learn more" about the needs of potential borrowers in the days ahead.
Powell noted that based on public comment, the Fed has already made changes to the minimum and maximum loan sizes and expanded the size of firms permitted to borrow under the MSLP. "These changes should help the program meet the needs of a wider range of employers that may need bridge financing to support their operations and the economic recovery," he said.
Powell also highlighted the financial industry's performance throughout the COVID-19 pandemic. "[B]anks entered this period with substantial capital and liquidity buffers and improved risk management and operational resiliency," he said. "As a result, they have been well positioned to cushion the financial shocks we are seeing. In contrast to the 2008 crisis when banks pulled back from lending and amplified the economic shock, in this instance they have greatly expanded loans to customers."
Powell is to appear before the committee along with Treasury Secretary Steven Mnuchin this morning to provide an update on the implementation of the CARES Act.
SBA Issues Foreign Language PPP Materials, Clarifies Eligibility for Foreign Affiliates
To assist non-English speakers with completing their Paycheck Protection Program applications, the Small Business Administration yesterday issued a number of foreign-language resources, including a sample application, warnings about PPP-related frauds and scams, and frequently asked questions. The documents are provided for informational purposes only, and SBA reminded borrowers that their PPP applications must be submitted in English.
SBA also issued an interim final rule yesterday addressing the eligibility requirements related to entities with foreign affiliates. The rule takes effect upon publication in the Federal Register and will remain applicable until the earlier of June 30, 2020, or when program funding is exhausted.
FinCEN Issues Warning on COVID-19 Medical Scams, Notice on Reporting
The Financial Crimes Enforcement Network yesterday issued an advisory on medical scams related to the coronavirus pandemic—the first in a new series of warnings about COVID-19-related financial crimes—as well as a notice on filing reports of COVID-19-related suspicious activities.
The notice reminds banks of their Bank Secrecy Act reporting obligations while "recogniz[ing] that current circumstances may create challenges with respect to certain BSA obligations, including the timing requirements for certain BSA report filings." It provided information about what banks should include in suspicious activity reports during the pandemic and provides contacts for reporting suspected COVID-19-related crimes to other agencies.
FinCEN also released an advisory documenting 22 red flags for COVID-19-related medical scams, including fraudulent treatments or tests, non-delivery of medical goods, price gouging and hoarding. The advisory also provides case studies of these kinds of scams.
Read the advisory on medical scams
Agencies Announce Temporary SLR Change to Help Banks Serve Customers
In an effort to enable banks to safely expand their balance sheets to meet the needs of customers during the coronavirus pandemic, federal banking regulators on Friday issued an interim final rule allowing depository institutions to temporarily exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio.
FDIC Chairman Jelena McWilliams noted that the since the coronavirus pandemic began, "the flight to liquid assets has resulted in dramatic deposit inflows since the beginning of March. This balance sheet expansion, in turn, has contributed to insured depository institutions making substantial deposits in their accounts at Federal Reserve Banks and acquiring significant amounts of U.S. Treasury securities. These trends may continue while ongoing financial market volatility persists." She added that "absent these adjustments, the increase in IDIs’ balance sheets may cause sudden and significant spikes in the regulatory capital needed to meet the SLR requirement."
The agencies noted that any institution making changes to its SLR calculation must request approval from its primary federal banking regulator before making capital distributions until the exclusion sunsets on March 31, 2021. The rule takes effect upon publication in the Federal Register and comments will be accepted for 45 days.
Financial sector vulnerabilities are "likely to be significant in the near term," as the coronavirus pandemic continues to take a severe toll on economic activity in the U.S., the Federal Reserve said in its latest financial stability report released on Friday. "The strains on household and business balance sheets from the economic and financial shocks since March will likely create fragilities that last for some time," the report said. "Financial institutions—including the banking sector, which had large capital and liquidity buffers before the shock—may experience strain as a result."
The Fed flagged rising household and business debt and a deterioration of borrowers’ ability to repay as the economy continues to contract sharply. Prior to the pandemic, business and household debt expanded at a pace similar to the U.S. GDP, but that ratio is expected to rise "dramatically" as 2020, with a significant decrease in GDP expected. In addition, the Fed noticed that the business sector was highly leveraged going into the crisis.
While banks entered the pandemic well-capitalized and have thus far been able to meet the credit demands of their customers while simultaneously strengthening their loan loss reserves, the Fed cautioned that the prospect for losses over the medium term "appears elevated." The Fed also observed volatile asset prices across many markets and noted that they remain vulnerable to significant price declines if the current downward economic trajectory continues for a protracted period. Additionally, heightened funding risks that emerged early in the pandemic prompted the Fed to respond quickly by establishing several new liquidity facilities.
Looking ahead, the Fed warned that banks may continue to face operational risk associated with the pandemic, though the reported noted that "banks’ relative success thus far demonstrates the benefits of both having [business continuity plans] and actively testing them." Additionally, stresses in global markets could also spill over and further strain U.S. markets, the Fed said.
ICYMI - SBA: Lender Review May Be Required for Certain PPP Loans
The Small Business Administration last Thursday notified Paycheck Protection Program lenders that certain loans in their PPP portfolios may require review. Those loans – which have been marked by SBA as being in "research" status – must be reviewed for accuracy and completeness. A lender should verify the borrower’s name, EIN or Social Security number for these loans and make any necessary changes by today at 5 p.m. EDT.
SBA provided instructions for lenders on how to access the Capital Access Financial System, which was recently updated with a new search functionality intended to help PPP lenders review the loans in their portfolios.
Additionally, SBA announced an operational change in how it receives PPP loan data from lenders through the E-Tran system. "Business type will now determine whether a loan application should be submitted with either an SSN or EIN," SBA said, adding that lenders may no longer use a SSN in the place of a primary TIN for types of businesses requiring an EIN.
View instructions for accessing CAFS
ICYMI - FHFA Extends Foreclosure, Eviction Moratorium for GSE-Backed Mortgages
The Federal Housing Finance Agency announced last Thursday that it would extend – until at least June 30 – a moratorium on foreclosures and evictions for single-family mortgages backed by Fannie Mae or Freddie Mac. The current moratorium was expected to expire on May 17.
"During this national health emergency, no one should be forced from their home," said FHFA Director Mark Calabria. "Extending the foreclosure and eviction moratoriums protects homeowners and renters with an enterprise-backed mortgage and provides certainty for families."
ICYMI - SBA Announces Safe Harbor for PPP Borrowers with Loans for Less than $2M
Following the recent announcement that the Small Business Administration would review any Paycheck Protection Program loans made in amounts exceeding $2 million, the agency last Wednesday issued guidance extending an automatic safe harbor to borrowers receiving PPP loans with an original principal amount of less than $2 million. These borrowers "will be deemed to have made the required certification concerning the necessity of the loan request in good faith," SBA said in updates to its PPP FAQ.
Borrowers that received PPP loans for amounts over $2 million will be subject to review by the SBA for compliance with program requirements, including the certification of economic need. "If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness," SBA indicated.
SBA added that borrowers who repay their loans after receiving notification from the SBA will not be subject to administrative enforcement or referrals to other agencies. Additionally, SBA’s determination regarding the necessity of the loan request will not affect the SBA loan guarantee.
SBA also announced last Wednesday that it would extend until May 18 the deadline for PPP borrowers who did have access to other sources of capital to return funds.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.