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Fed revises Municipal Lending Facility to include more cities and counties; extends expiration date
On April 27, the Federal Reserve (Fed) announced it will expand the Municipal Liquidity Facility (MLF) in important ways. As previously covered by InfoBytes, the MLF was established to provide liquidity to state and local governments so they could continue to provide services for their citizens. As when it was established on April 9, the facility will provide up to $500 billion through the purchase of state and county-issued short-term notes, with $35 billion in credit protection provided by the Treasury pursuant to the CARES Act. Revisions to the MLF include lower population thresholds for the facility. Specifically, the facility will purchase notes from counties with at least 500,000 residents, down from the original two million resident threshold, and U.S. cities with a minimum of 250,000 residents, down from the original one million residents threshold. Further, to be eligible for the revised facility, notes must mature within 36 months of issuance—an increase from the previous 24-month maximum maturity term. Issuers must also have had at least two nationally recognized statistical rating firms provide investment grade ratings, as of April 8, 2020. In addition, the Fed extended the termination date for the MLF from September 30 to December 31, 2020.
Federal Reserve provides updates on facilities in Section 13(3) report to Congress
On April 24, the Federal Reserve filed a report with Congress regarding various new credit facilities developed to combat liquidity issues caused by the Covid-19 pandemic. The report provides the initial update to Congress regarding the Primary Dealer Credit Facility, Commercial Paper Funding Facility, and Money Market Mutual Fund Liquidity Facility pursuant to Section 13(3) of the Federal Reserve Act as of April 14, 2020.
Fed IFR allows unlimited monthly convenient transfers and withdrawals
On April 23, the Fed issued an interim final rule (IFR) which will remove the limit on monthly transfers from “savings deposits” in Regulation D. The IFR revises Regulation D’s definition of a savings deposit so that it no longer includes the monthly convenient transfer limit of six. The IFR permits, but does not require, institutions to suspend enforcement of the six transfer limit. The IFR contains frequently asked questions and answers on the impact it will have on accounts, reporting and funds access. The Federal Register announcement is linked here. Federal Financial Institutions Examination Council reports that may be affected by this IFR will be addressed later. The IFR took effect on April 23, and the Fed will accept comments until June 22.
Fed to issue monthly reports on CARES Act loan programs
On April 23, the Federal Reserve Board (Fed) announced that in an effort to maintain transparency, it will disclose information to the public regarding recent actions it has taken to “foster economic recovery.” Among the information it will make public, the Fed plans to issue a monthly report on CARES Act liquidity and lending facilities which will contain the: (i) “[n]ames and details of participants in each facility”; (ii) “[a]mounts borrowed and interest rate charged”; and (iii) “[o]verall costs, revenues, and fees for each facility.” The Fed will provide this information on four CARES Act programs including the Main Street Lending Program (see Buckley Special Alert here).
Fed announces temporary increase of intraday credit by Federal Reserve Banks
On April 23, the Federal Reserve (Fed) announced that it temporarily increased the availability of intraday credit that can be provided by the Federal Reserve Banks. In its policy statement, the Fed stated that it will automatically suspend net debit caps and waive overdraft fees to assist primary credit institutions, which are “eligible to borrow under the Federal Reserve’s primary credit program for the discount window.” In addition, the Fed announced that its max cap procedure will be streamlined to enable secondary credit institutions—which are “eligible only for the Reserve Banks’ secondary credit discount window program”—to utilize the max cap program to “request collateralized capacity from their Reserve Banks,” and will waive the requirement to obtain a self-assessed net debit cap and board resolution before requesting a max cap. The Fed’s actions are effective as of April 24 and will terminate on September 30.
Iowa Division of Banking issues statement to bank presidents and CEOs
On April 22, the Iowa Division of Banking issued a statement to bank presidents and CEOs. The statement encourages banks to consider the Paycheck Protection Program Lending Facility created by the Federal Reserve as a liquidity option for Paycheck Protection Program loan activity. The announcement also addresses off-site examinations of financial institutions; the interagency statement on appraisals and evaluations for real estate affected by Covid-19; tracking payment extensions, deferrals, and modifications when working with customers; and loan loss reserve analysis, among other topics.
Fed issues enforcement actions for flood insurance violations
On April 16, the Federal Reserve Board announced enforcement actions against a New Jersey-based bank and a Virginia-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order issued against the New Jersey-based bank assesses a $28,000 penalty for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. A separate consent order issued against the Virginia-based bank assesses a $5,500 penalty and similarly does not describe the specific alleged allegations. The banks neither admitted nor denied the allegations. The maximum civil money penalty for a pattern or practice of violations of the NFIA is $2,000 per violation.
Fed provides FAQs on PPP liquidity facility
On April 20, the Federal Reserve Board (Fed) released a series of frequently asked questions (FAQs) and answers relating to the agency’s newly launched Paycheck Protection Program Liquidity Facility (PPPLF). As previously covered by InfoBytes, the PPPLF was up and running on April 16 to provide liquidity to banks making loans to small businesses pursuant to the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The SBA-guaranteed PPP loans are used as collateral for term financing provided by the PPPLF. The PPPLF extends credit to financial institutions participating in the PPP at a fixed rate of 35 basis points. Additional information regarding the PPPLF, including a term sheet, borrowing documentation, and operational documentation including samples can be found on the Fed website here.
Fed issues rule to temporarily allow bank insiders access to PPP
On April 17, the Federal Reserve Board (Fed) announced an interim final rule to allow “certain bank directors and shareholders” to apply for loans from the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The rule will temporarily suspend some of the requirements of Federal Reserve Act Section 22(h) and Regulation O, to permit banks to extend credit to bank insiders, but only for PPP loans. This announcement comes after the SBA recently issued its own interim final rule regarding eligibility of directors and shareholders to apply for PPP loans for their own small businesses. The Fed’s interim final rule is effective upon publication in the Federal Register and comments must be received within 45 days of publication.
Fed's PPP Liquidity Facility is fully operational
On April 16, the Federal Reserve announced that its Paycheck Protection Program Liquidity Facility is fully operational and available to provide liquidity to eligible financial institutions as they help support small businesses. In particular, the facility will extend credit to financial institutions that make PPP loans, with such loans acting as the collateral.