COVID-19 UPDATES / GOVERNMENT RELATIONS
H.R. 748 Coronavirus Aid, Relief, and Economic Security Act Passes Senate
Wednesday night the Senate passed H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act. While the bill has passed one major hurdle, it still must be voted on by the House of Representatives, which is expected to occur late this week. Below is a list of the main areas of impact.
1. Provides temporary relief from troubled debt restructurings beginning March 1, 2020, and extends for 60 days after the end of the COVID-19 national emergency, allowing banks to suspend the requirements under GAAP principles for loan modifications related to COVID-19 that would otherwise be categorized as TDRs.
2. Gives institutions the option to delay the implementation of the current expected credit loss standard until the conclusion of the national emergency or Dec. 31, 2020, whichever comes first.
3. Reduces the community bank leverage ratio from 9% to 8% until the end of the national emergency or Dec. 31, 2020, whichever comes first.
4. Temporarily waives national bank lending limits until the end of the national emergency or Dec. 31, 2020, whichever comes first.
5. Modifies the Dodd-Frank Act to give the FDIC authority to establish a temporary program to guarantee bank debt.
6. Provides an economic stabilization fund of $500 billion to the Treasury Department to provide sufficiently collateralized loans, loan guarantees and other investments to eligible entities.
7. Increases the amount of interest expenses businesses may deduct on their tax returns.
8. Supports livestock and specialty crop producers.
9. Enhances the Small Business Administration’s 7(a) loan program.
ICYMI: Banking and Financial Services Deemed Essential and to Remain Open Through Governor Holcomb’s "Stay at Home" Order
On Monday Governor Holcomb signed Executive Order 20-08, Directive For Hoosiers To Stay At Home, effective 11:59 p.m. March 24 through 11:59 p.m. April 6. The order outlined essential businesses and operations that are to remain open during the "Stay at Home" order. Included in the essential businesses and operations were Financial and Insurance Institutions.
As a result of the Governor's "Stay at Home" order, it is recommended that bankers carry documentation to ensure their ability to get to work. This documentation includes a letter provided by United States Department of the Treasury Secretary Steven T. Mnuchin and a company ID.
Financial Services Sector Essential Critical Infrastructure Workers Letter
FFIEC Announces Grace Period for March 31 Call Reports
On Wednesday the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation under the auspices of the Federal Financial Institutions Examination Council issued a press release recognizing that financial institutions may need additional time to submit certain regulatory reports as a result of the COVID-19 pandemic. The agencies announced they will not take action against institutions for submitting in good faith its March 31, 2020, Consolidated Reports of Condition and Income (or call report) after the official filing deadline, as long as the report is submitted within 30 days after the official filing deadline. This grace period applies to submissions of all three versions of the call report (FFIEC 031, FFIEC 041, and FFIEC 051).
Loans Modified Due to COVID-19 Generally Not Treated as TDRs, Agencies Clarify
Loan modifications for borrowers affected by the coronavirus pandemic will not generally be required to be treated as troubled debt restructurings, federal and state banking agencies indicated Sunday night. The agencies reported they had confirmed with FASB staff that "short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs." These include short-term - for example, six months - modifications like payment deferrals, fee waivers and repayment term extensions.
Meanwhile, the agencies indicated that examiners will "exercise judgment" in reviewing loan modifications and "not automatically adversely risk rate credits that are affected by COVID-19," including those that are designated as TDRs. Otherwise good single-family mortgage loans modified for COVID-19 reasons will likewise not be considered restructured or modified under risk-based capital rules. The guidance also addresses past-due reporting, nonaccrual status, charge-offs and the eligibility of modified loans as discount window collateral.
Read the interagency statement
IRS Moves Tax Filing Deadline to July 15
Treasury Secretary Steven Mnuchin last Friday announced that at the direction of President Trump the IRS will extend the tax filing deadline for all filers from April 15 to July 15. That announcement came after the IRS earlier this week indicated it would defer tax payments (up to $1 million for individuals and up to $10 million for corporations) for 90 days. No penalties or interest will be assessed as a result of the deferred payments and filings. The extension applies to individuals, trusts and estates, corporations and other non-corporate tax filers, as well as those paying self-employment taxes.
Fed Expands Stimulus Measures, QE; Will Support Corporate Credit
In its most sweeping move yet to prop up the U.S. economy amid the coronavirus pandemic and public health response, the Federal Reserve on Monday unveiled several new facilities to support the flow of up to $300 billion in financing to households and businesses and committed to quantitative easing "in amounts needed" to support market functioning.
"The coronavirus pandemic is causing tremendous hardship across the United States and around the world," the Fed reported. "While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate."
New efforts announced include:
• Two new facilities to support credit to large employers, including a Primary Market Corporate Credit Facility to bond and loan issuance to investment-grade companies with four year bridge financing, facilitating continued payments to employees and vendors.
• Also supporting large employers, a Secondary Market Corporate Credit Facility to provide liquidity for outstanding investment-grade corporate bonds.
• A Term Asset-Backed Securities Loan Facility, or TALF, to suppose issuance of securities backed by student loans, auto loans, credit card debt and Small Business Administration-guaranteed loans.
• Federal Open Market Committee purchases of commercial mortgage-backed securities along with agency MBS as part of its previously announced round of quantitative easing, which will expand as needed to support smooth market functioning.
• Expansions to previously announced facilities, allowing the Money Market Mutual Fund Liquidity Facility to accept municipal variable rate demand notes and bank CDs as collateral, allowing the Commercial Paper Funding Facility to accept high-quality, tax-exempt commercial paper as eligible securities and lowering prices on the CPFF.
The PMCCF, SMCCF, TALF and CPFF will be supported by equity infusions from the Treasury Department’s Exchange Stabilization Fund. Companies expected to receive aid under pending legislation are not eligible for PMCCF and SMCCF participation. The Fed indicated it would soon announce a "Main Street Business Lending Program," complementing SBA efforts, to support loans to small and midsize businesses.
These efforts come atop other Fed actions in recent days, including liquidity facilities for commercial paper, money market funds and primary dealers; expansion of central bank liquidity swap lines; efforts to promote use of the discount window; elimination of reserve requirements; and guidance encouraging banks to be flexible with customers affected by COVID-19.
FHFA Announces New Measures to Ensure Liquidity in Mortgage Markets
To help ensure liquidity in the secondary mortgage market, the Federal Housing Finance Agency Tuesday directed Fannie Mae and Freddie Mac to engage in additional dollar roll transactions, which would provide investors in mortgage-backed securities with short-term financing of their positions. These transactions must be undertaken via auction or similar mechanism, and eligible collateral is limited to agency MBS.
The agency also indicated it would allow Fannie and Freddie to exercise greater flexibility with respect to appraisal requirements and employment verification requirements for mortgage transactions through May 17, 2020. FHFA noted, however, that "lenders should continue to utilize sound underwriting judgment to ensure these alternatives are appropriate to the borrower's circumstances."
Specifically, FHFA reported it would allow the GSEs to "leverage appraisal alternatives to reduce the need for appraisers to inspect the interior of a home for eligible mortgages." In addition, FHFA indicated the GSEs may obtain employment verification via an email from an employer, a recent year-to-date paystub from the borrower or a recent bank statement showing payroll deposit in the event that a verbal verification of employment cannot be obtained.
GSEs to Offer Forbearance Options for Multifamily Property Owners
In related news, FHFA also announced that Fannie Mae and Freddie Mac will offer mortgage forbearance for multifamily property owners, provided they suspend all evictions for renters unable to pay rent due to the coronavirus pandemic. Evictions must be deferred for the entire time the property owner remains in forbearance.
These are the latest steps taken by FHFA to ensure the flow of liquidity and operational efficiency through the market during the coronavirus pandemic. Last week, the agency announced a 60-day suspension of foreclosures and evictions and forbearance options for borrowers experiencing financial difficulties due to the pandemic.
GOP Lawmakers Seek Extension for Banks Filing CTRs
A group of House Republican lawmakers Tuesday asked Financial Crimes Enforcement Network Director Ken Blanco for an extension for institutions filing currency transaction reports until at least after the coronavirus national emergency has concluded.
The lawmakers noted that CTRs represent a major regulatory compliance burden for small banks in particular, and that such an extension "would help banks and credit unions focus on their most urgent and important priorities during this public health emergency, which are serving consumers and keeping credit flowing to the economy."
Fed to Adjust Reduce Exam Activities As It Focuses on Coronavirus Response
The Federal Reserve will "temporarily reduce" its bank examination activities as it pivots to focus on responding to the immediate challenges posed by the coronavirus, the agency indicated in a statement Tuesday evening. All regular examination activity will be suspended until at least the last week in April at institutions with less than $100 billion in total consolidated assets, the Fed reported, "except where the examination work is critical to safety and soundness or consumer protection, or is required to address an urgent or immediate need."
For larger institutions with more than $100 billion in assets, the Fed will defer "a significant portion" of planned examination activity. Firms required to submit plans under the Comprehensive Capital Analysis and Review exercise should still submit their capital plans by April 6, however.
The Fed will also grant institutions an additional 90 days to remediate existing supervisory findings, except under specific circumstances where "more timely remediation would aid the firm in addressing a heightened risk or help consumers." Additionally the agency reminded banks of previous guidance stating that banks who work constructively with borrowers facing challenges due to the virus will not be subject to regulatory criticism.
During this protracted period of uncertainty, bank supervisors will be directed to increase their focus on monitoring bank activity, specifically bank operations, capital, liquidity, asset quality and the effects of the virus on consumers. For large banks, supervisors will also monitor operational resiliency and the risks to overall financial stability, the Fed indicated.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.