FEDERAL GOVERNMENT RELATIONS
IBA Washington Trip - July 18-20
Register now for the IBA Annual Washington Trip, scheduled for July 18-20. Join with fellow Hoosiers as we travel to our nation’s capital to tell the story of Indiana banking to elected officials and regulators. This is an opportunity to discuss the impact legislation has had or may have on your bank, and how currently proposed policies could influence your customers and communities. It is more important now than ever to engage in grassroots advocacy as you share your concerns, your successes and what you believe will allow you to better serve your communities. We look forward to seeing you in Washington!
Financial Services Groups Continue Support for ‘True Lender’ Rule
Financial services groups told Congress they oppose legislative efforts to repeal the Office of the Comptroller of the Currency’s “true lender” rule in a letter to Congress.
Joint Letter: The groups said the OCC rule brings clarity and accountability to lending and promotes wider access to credit. Repealing it would create significant legal impediments to creating this needed framework, they said.
Rule: The OCC rule creates a standard to determine when a bank is the “true lender” when partnering with a third party. Under the rule, banks are deemed true lenders if they fund the loan or are named as the lender in the loan agreement on the origination date.
Congress: House and Senate lawmakers have introduced resolutions to repeal the rule under the Congressional Review Act, which allows lawmakers to invalidate federal rules and limits agencies’ ability to issue a similar rule in the future. Proponents argue the rule undercuts state consumer protection laws.
SBA: PPP Funds Exhausted for All but CDFIs, MDIs
The Small Business Administration informed trade associations on Tuesday that Paycheck Protection Program funding has been exhausted, and that the PPP application portal has stopped accepting applications for loans from most lenders.
SBA indicated that it has reserved approximately $6 billion in funding for previously submitted loan applications subject to hold codes that have yet to be resolved. There is also approximately $8 billion remaining in congressionally mandated funding for PPP loans made by designated “community financial institutions,” defined for bankers’ purposes as minority depository institutions and community development financial institutions.
SBA reminded trade associations that loan applications that have not yet received an SBA loan number have not been approved. Banks with applicants in this situation may consider referring clients to MDIs and CDFIs.
SBA Updates Guidance on PPP Whole Loan Sales
The Small Business Administration on Monday extended its guidance on how lenders may sell whole Paycheck Protection Program loans. The SBA’s previous guidance on whole loan sales of PPP loans expired on May 1, and the new guidance has been backdated to take effect on April 30, 2021.
The guidance reaffirmed that lenders participating in the PPP may sell all of their interest in PPP loans to other participating lenders, and that SBA’s prior written consent is not required for these sales. SBA emphasized that the procedural notice “applies to lender merger and acquisition transactions where the lender has PPP loan(s) in its portfolio.”
The notice also covers obligations of purchasing and originating lenders, required documentation and required notice to – but not approval by – the SBA.
Powell: Broad Effort Needed for All to Benefit from Economic Recovery
The Federal Reserve is focused on addressing “long-standing disparities” in unemployment “because they weigh on the productive capacity of our economy,” Federal Reserve Chairman Jerome Powell said Monday during remarks at an industry event. “We will only reach our full potential when everyone can contribute to, and share in, the benefits of prosperity.” Achieving that goal “will take action from across society, from fiscal and other government policy to private-sector initiatives” to community development efforts, he added.
Powell highlighted new figures from the Fed’s latest Survey of Household Economics and Decision-making (due to be published later this month) that saw, for example, higher unemployment among prime-age workers without college degrees than those who were college-educated, as well as disparities in the number of Black and Hispanic workers that were laid off compared to white workers in 2020. Additionally, “while the recovery is gathering strength, it has been slower for those in lower-paid jobs: Almost 20% of workers who were in the lowest earnings quartile in February of 2020 were not employed a year later, compared to 6% for workers in the highest quartile,” he observed.
As the recovery moves forward, Powell said that the Fed will continue using its monetary policy tools to strengthen the economy and the employment outlook. The agency will also use its supervisory tools to ensure fair lending compliance, as well as engage with community development stakeholders to encourage investment and the expansion of credit opportunities in low- and moderate-income communities.
Fed: Banks Demonstrated Financial, Operational Resilience During COVID-19
Throughout the COVID-19 crisis, “the benefits of a resilient banking system have been evident” as banks’ “strong capital and liquidity positions” have enabled the pandemic recovery, the Federal Reserve indicated last Friday in its supervision and regulation report. During the crisis, banks were able to build additional capital and end the year with capital ratios at most firms remaining well above regulatory minimums, the Fed said. Liquidity also strengthened from an influx of deposits.
The report also found that large firms showed operational resilience through the pandemic. In particular, “digitization of banking activities allowed firms to continue these operations in the remote work environment,” the Fed said. Meanwhile, community and regional banks “are generally addressing the risks arising from the COVID event within their loan portfolios and operations,” according to the report. Given the increased reliance on technology during the pandemic, the Fed reported it expects these firms to remain vigilant about cyberthreats and ensure sound third-party risk management practices.
While the banking system remains healthy overall, the Fed did note that bank lending activity has been slow outside of Paycheck Protection Program loans. The report also flagged a slight increase in delinquency rates, which it observed most significantly in residential real estate and commercial real estate loans, and continued loan modification activity as borrowers continue to face COVID-related challenges. Bank net interest margins also continued to trend downward in 2020, though they recovered slightly toward the end of the year after a sharp drop in the first three quarters.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.