STATE GOVERNMENT RELATIONS
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Organization Day Marks the Start of the 2021 Indiana Legislative Session
On Tuesday the Indiana General Assembly convened for Organization Day to perform multiple procedural acts that mark the beginning of the 2021 legislative session. Session does not officially begin until Jan. 4, 2021. In the meantime, Organization Day gives legislators an opportunity to prepare for the year ahead.
Organization Day allows newly elected legislators to be sworn into their new roles. A total of 16 new legislators – 13 in the House and three in the Senate – took their oaths of office to serve the state. The 2021 session will be like no other before it. With the pandemic still looming, there will be many legislative efforts aimed at related needs. Additionally, a biennial budget must be passed, and legislators must craft new legislative districts.
Liability assurances for businesses to protect them against COVID-19 lawsuits will also garner a great deal of attention. The IBA Government Relations Team will be involved in those discussions, along with any other discussions pertaining to the industry specifically.
FEDERAL GOVERNMENT RELATIONS
Treasury Seeks to Wind Down Emergency Credit Facilities
With several emergency credit facilities created to respond to the COVID-19 emergency scheduled to wind down by year’s end, Treasury Secretary Steven Mnuchin yesterday asked the Federal Reserve to return unused funds in several facilities to the Treasury. The facilities Mnuchin sought to wind down are the Main Street Lending Program, the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Term Asset-Backed Securities Loan Facility and the Municipal Liquidity Facility.
Treasury approved $195 billion in CARES Act funding for these facilities, supporting lending capacity of about $2 trillion, but just $25 billion has actually been lent. “While portions of the economy are still severely impacted and in need of additional fiscal support, financial conditions have responded and the use of these facilities has been limited,” Mnuchin said. Returning the funds would “allow Congress to re-appropriate $455 billion,” he added.
However, Mnuchin asked that the Fed extend two facilities that used Treasury funding – the Commercial Paper Funding Facility and the Money Market Mutual Fund Liquidity Facility – as well as the Primary Dealer Credit Facility and PPP Liquidity Facility, which did not use Treasury funding, for 90 days.
In a statement, the Fed responded that it “would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.
IRS Issues Guidance on Deductibility of Qualified PPP Expenses
The IRS on Wednesday issued a ruling that borrowers expecting Paycheck Protection Program loan forgiveness applications to be approved must disallow a deduction for qualified 2020 expenses in 2020 tax returns, even in situations where the forgiveness application has not been approved or filed by the end of the year.
Earlier this year, the IRS indicated that qualified expenses that generate PPP loan forgiveness are non-deductible. Wednesday’s ruling was issued in response to questions raised about nondeductible expenses in situations where the expenses are paid in 2020 and the forgiveness of the loan may not occur until 2021. An industry concern is that interpretation of the guidance could accelerate non-deductibility with a negative effect on PPP borrowers’ cash flow.
The IRS also issued a revenue procedure that provides guidance for PPP borrowers that either do not apply for forgiveness or have all or part of the forgiveness application denied.
Fed Removes Some Coin Allocation Caps
The Federal Reserve removed coin allocations for pennies and quarters while raising caps for nickels and dimes by 25%, as Reserve Bank coin inventories near pre-pandemic levels.
In a message to Federal Reserve Cash Services customers, the Fed indicated it will apply the updated standards to small, medium, large, X-large and XX-large “endpoint” groups. The sizing regime is based on historical ordering volumes and does not correspond to bank size.
The Fed asked customers to order only what they need to meet near-term demand, noting that coin circulation is improving but has not been fully resolved. Meanwhile, the U.S. Coin Task Force continues to call on financial institutions to use resources on its Get Coin Moving site to encourage consumers to gather and circulate coins.
FHFA Extends Loan Flexibilities
The Federal Housing Finance Agency has indicated Fannie Mae and Freddie Mac will extend several loan-origination flexibilities until Dec. 31. The flexibilities, previously set to expire Nov. 30, include alternative appraisals, alternative methods for documenting income and expanded use of power of attorney.
OCC Rule Updates Licensing Requirements
The Office of the Comptroller of the Currency has released a final rule updating and clarifying licensing policies and procedures. The final rule makes various changes to the OCC’s Rules, Policies, and Procedures for Corporate Activities, 12 CFR part 5.
Among the changes, the rule:
- Allows national banks and federal savings associations to follow procedures that apply to state institutions for certain business combinations;
- Expands the operating subsidiary notice and expedited review processes;
- Permits investments in entities that have not agreed to OCC supervision;
- Provides procedures for granting and revoking citizenship and residency waivers for directors;
- Changes the definition of “troubled condition” for changes in directors and senior executives.
Shelton Nomination Fails to Advance; Brooks Gets OCC Nod
Judy Shelton's Federal Reserve Board nomination failed to advance in the Senate, as supportive Republican Sens. Charles Grassley (Iowa) and Rick Scott (Fla.) quarantined due to COVID-19 exposure. Senate Majority Leader Mitch McConnell (Ky.) voted no in the 47-50 vote, allowing him to try to advance the nomination again later.
Also on Tuesday, President Donald Trump announced his intent to nominate Brian Brooks for a five-year term as comptroller of the currency, though the Senate has limited time left this year to confirm new nominations.
Read the White House announcement
FHFA Issues 2021 Multifamily Loan Purchase Caps
The Federal Housing Finance Agency has indicated that the 2021 multifamily loan purchase caps for Fannie Mae and Freddie Mac will be $70 billion for each enterprise. The new caps apply to all multifamily businesses with no exclusions and covers the four quarters of the 2021 calendar year, unlike the 2020 cap structure.
At least 50% of the enterprises’ loans must be used for affordable housing, up from 37.5% in 2020. For the first time, affordable housing manufactured housing communities must be resident-, government- or nonprofit-owned, or must have tenant pad lease protections.
Fed: Banks Are the ‘Shock Absorbers’ of Real Economy as Pandemic Continues
The nation’s banks have been the shock absorbers for the real economy as the pandemic causes turmoil in financial markets, the Federal Reserve indicated in its supervision and regulation report released last Friday. The Fed noted that banking organizations have been a source of strength rather than strain to the economy, entering the pandemic with substantial capital and liquidity, and improved risk management and operational resiliency since the 2008 crisis.
The Fed highlighted that banks have provided access to lines of credit for corporate borrowers and played a significant role in supporting small businesses via the Paycheck Protection Program. The report noted that banks took a number of actions to maintain financial and operational resiliency and, as a result, capital levels remain robust – “indeed, they have actually increased during the COVID event” – aided by timely policy response and capital preservation measures.
“Despite a great deal of turmoil in financial markets, the solvency of the banking system has not been in question. Banks have increased lending, absorbed a surge of deposits, and worked constructively with borrowers,” the Fed indicated in the report, adding that “despite operational challenges, both banks and examiners have generally transitioned to a largely remote work environment without significant disruption to the provision of financial services. Bank branches have begun to reopen in line with local conditions and relevant guidelines.”
FHFA Issues Final GSE Capital Rule
The Federal Housing Finance Agency has issued its final rule establishing a new regulatory capital framework for Fannie Mae and Freddie Mac.
The final rule establishes risk-based capital requirements for the enterprises and is similar to the proposal rule, requiring government-sponsored enterprises to maintain Tier 1 capital over 4% to avoid restrictions on capital distributions and discretionary bonuses.
In the final rule, however, the FHFA has increased capital relief for credit risk transfers. It also reduced capital requirements for single-family mortgage exposures subject to COVID-19-related forbearance and increased the exposure level risk-weight floor for mortgages exposures.
However, the FHFA increased capital relief for credit risk transfers, as ICBA advocated in its comment letter earlier this year.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.