InfoBytes Blog

ARRC recommends firms slow use of LIBOR before year end

On October 14, the Alternative Reference Rates Committee (ARRC) recommended that all market participants take proactive action now to reduce their use of U.S. dollar LIBOR to promote a smooth end to new LIBOR contracts by year end. ARRC referred to a joint statement issued last November by the Federal Reserve Board, FDIC, and OCC encouraging banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. (Covered by InfoBytes here.) According to the agencies, entering into contracts after this date will create safety and soundness risks given consumer protection, litigation, and reputation risks at stake. ARRC recommended that firms adopt its selected alternative, the Secured Overnight Financing Rate, which is consistent with steps that several firms have already taken to ensure they are in the position to meet the supervisory guidance. This includes “setting targets for reductions in new LIBOR activity, limiting the range of LIBOR offerings, and implementing internal escalation exceptions processes around new LIBOR contracts for narrow cases in line with supervisory guidance.” 

Federal Issues ARRC LIBOR SOFR Federal Reserve FDIC OCC Bank Regulatory

Fed joins Central Bank Network for Indigenous Inclusion

On October 13, Federal Reserve Governor Lael Brainard announced that the Fed has joined the Central Bank Network for Indigenous Inclusion to foster continuing dialogue, research, and education and increase awareness of economic and financial issues and opportunities for Indigenous economies. The same day, Brainard spoke at Fed Listens: Roundtable with Oklahoma Tribal Leaders in Oklahoma City, Oklahoma, to discuss how the economic disparities experienced by tribal nations were exacerbated by the Covid-19 pandemic. She noted that in an effort to overcome such disparities, it will be important to identify and address barriers to financial inclusion. In addition, Brainard discussed how the Fed has a role to play in supporting economic growth and financial inclusion in Native communities, and that the Fed is collaborating with the other banking agencies to propose Community Reinvestment Act reforms that would increase financial inclusion and the availability of community development financing in underserved communities.

Federal Issues Federal Reserve Diversity Covid-19 CRA Bank Regulatory

Brainard provides update on central bank-issued digital currencies

On May 24, Federal Reserve Governor Lael Brainard spoke at the Consensus by CoinDesk 2021 Conference about the Fed’s exploration of central bank digital currencies (CBDCs) and cross-border payments. Brainard noted that a CBDC may address concerns regarding the lack of federal deposit insurance and banking supervision for nonbank issuers of digital assets, and that “new forms of private money may introduce counterparty risk into the payments system in new ways that could lead to consumer protection threats or, at large scale, broader financial stability risks.” She highlighted that “introducing a safe and accessible central bank money to households and businesses in digital payments systems. . .would reduce counterparty risk and the associated consumer protection and financial stability risks.” Brainard noted that a Fed-backed digital currency could cause payment transactions to be cheaper, faster, and more efficient by improving processes for sending and receiving money internationally, encouraging private-sector competition in retail payments, and increasing financial inclusion.

Brainard discussed how CBDCs could affect central banks’ ability to manage the economy, saying a digital dollar would need to be designed with safeguards to “protect against disintermediation of banks and to preserve monetary policy transmission more broadly.” She cautioned that the design should complement, not replace, existing currency and bank deposits and emphasized the need for regulators to work together “to ensure that banks are appropriately identifying, monitoring, and managing risks associated with digital assets.”

As previously covered by InfoBytes, last week Chairman Jerome Powell stated that an important step in engaging the public about CBDCs involves “publishing [a] paper this summer to lay out the Fed’s current thinking on digital payments, with a particular focus on the benefits and risks associated with CBDC in the U.S. context.”

Federal Issues Federal Reserve Board Fintech Central Bank Digital Bank Regulatory Non-bank

Fed highlights potential of central bank digital currencies

On May 20, Federal Reserve Chairman Jerome Powell released a video message outlining the potential use of central bank digital currencies (CBDCs) in the U.S. payment system. Powell discussed how “the rise of distributed ledger technology, which offers a new approach to recording ownership of assets, has allowed for the creation of a range of new financial products and services—including cryptocurrencies,” which may carry potential risks to those users and to the broader financial system. Powell highlighted that the Fed is contemplating whether and how a U.S. CBDC would impact the domestic payments system, emphasizing that CBDCs “could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar.” Powell also noted that, as part of the Fed’s ongoing efforts in exploring the potential benefits and risks of CBDCs from a variety of angles, the Fed will begin broader consideration of the creation of a U.S. CBDC by issuing a discussion paper and requesting public comment on benefits and risks. Powell stated he expects the Fed to play a leading role in developing international standards for CBDCs by “engaging actively with central banks in other jurisdictions as well as regulators and supervisors here in the United States throughout that process.”

Federal Issues Regulation Federal Reserve Central Bank Digital Cryptocurrency Bank Regulatory Fintech

Rhode Island Division of Banking issues guidance on workplace practices to mitigate spread of Covid-19

On November 6, the Rhode Island Department of Business Regulation, Division of Banking issued Banking Bulletin 2020-6 announcing certain standards for personnel and office operations that it encourages financial institutions to implement to mitigate further spread of Covid-19. These standards include, among others, guidelines for employee mask-wearing and congregation, and arrangement of office furniture to encourage social distancing.

State Issues Covid-19 Rhode Island Financial Institutions Bank Regulatory

California extends measures to provide regulatory relief, reduce Covid-19 impact

On October 28, the California governor issued an executive order extending previously granted relief due to the continuing negative impact of the Covid-19 pandemic on businesses and individuals. The order suspends or extends numerous requirements related to professional fees, reporting and applications through June 2021.

State Issues Covid-19 California Bank Regulatory

Georgia Department of Banking and Finance issues bulletin regarding lending, liquidity, business continuity, and regulatory reporting

The Georgia Department of Banking and Finance has issued its monthly bulletin for financial institutions in which it provides guidance on lending, liquidity, business continuity planning, and regulatory reporting. Among other things, the department reiterates the importance of liquidity risk management during Covid-19 and urges financial institutions to consider the impact of certain scenarios on their liquidity. The department also provides questions that financial institutions should consider as part of their pandemic planning. The bulletin also notes that, for banks and credit unions, the department is implementing electronic document and payment submission for correspondence, applications, and requests, including any applicable fees.

State Issues Covid-19 Georgia Lending Bank Regulatory Risk Management Bank Compliance Credit Union

FINRA adds new Covid-19 FAQs

On April 6, FINRA added new FAQs to its Covid-19 regulatory relief FAQs document, which was launched in March (covered by InfoBytes here). The newly added FAQs state that (i) firms may electronically transmit required copies of the Uniform Termination Notice for Securities Industry Registration (Form U5) to terminated individuals; (ii) the prescribed period in which continuing education must be completed will be extended through May 31 for persons whose window is currently expired or set to expire before June; and (iii) late filing fees for Forms U4/U5 may be refunded or reduced upon request.

Previously, FINRA added FAQs regarding the “Net Capital Treatment of Covered Loans Under the CARES Act.” The FAQs cover adding back to net capital the “Forgivable Expense Amount” of a loan during the “covered period,” and excluding the loan amount from “aggregate indebtedness.” FINRA will continue to update the FAQ document as necessary, and it will issue a regulatory notice when a date for the termination of the temporary relief measures is determined. 

Federal Issues FINRA CARES Act Bank Regulatory Covid-19 Supervision

New Hampshire bank regulator exempts PPP loans from legal lending limits

On April 3, the New Hampshire Banking Department issued guidance to state-chartered banks indicating that loans made under the Small Business Administration’s Payment Protection Program are exempt from applicable legal lending limits because the loans are guaranteed by the Small Business Administration.

State Issues Covid-19 New Hampshire Bank Regulatory Lending SBA CARES Act

Agencies issue joint statement on loan modifications and reporting for financial institutions

On March 22, the Federal Reserve Board (Fed), CFPB, FDIC, NCUA, OCC, and Conference of State Bank Supervisors (CSBS) issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” to address the “unique and evolving situation” created by Covid-19. Guidance covered in the statement includes, among other things (i) “encourage[ing] financial institutions to work prudently with borrowers” negatively impacted by disruptions in the economy caused by the virus, to include providing loan modifications to borrowers and mitigating credit risk; (ii) advising that in “accounting for loan modifications” the modifications “do not automatically result in [troubled debt restructurings] (TDRs).” The agencies assert 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”; (iii) reporting loans as past due as a result of a payment deferral is “not expected”; (iv) reporting short-term loan arrangements, such as deferrals, as nonaccrual assets is temporarily not required; and (v) reminding financial institutions that restructured loans “continue to be eligible as collateral at the [Fed’s] discount window.” The statement adds that “the agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk,” and “agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.” (See Fed press release; OCC press release; FDIC press release and FIL-22-2020; NCUA press release; CFPB press release; and CSBS press release.)

Federal Issues Bank Regulatory Agency Rule-Making & Guidance Loan Modification Federal Reserve CFPB FDIC NCUA OCC CSBS Covid-19