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Federal regulators discuss Covid-19 responses during Senate hearing
On May 12, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Oversight of the Financial Regulators,” which primarily focused on responses by the Federal Reserve Board (Fed), FDIC, OCC, and NCUA to the Covid-19 pandemic. Committee Chairman Mike Crapo (R-ID) opened the hearing by thanking the regulators for crafting regulatory responses to assist financial institutions in meeting the needs of affected borrowers, and encouraged the regulators to find ways to provide flexibility for financial institutions that lend to households and businesses. Crapo also stressed the importance of making sure the Fed’s Main Street Lending Program (covered by a Buckley Special Alert) and the Municipal Liquidity Facility (coved by InfoBytes here) are “up and running quickly,” and expressed continued concerns that the “inclusion of population thresholds for cities and states that were not a part of the CARES Act will still impede access to smaller and rural communities.” Ranking Member Sherrod Brown (D-OH) argued, however, that the regulators’ relief measures have not favored consumers.
Fed Vice Chair for Supervision Randal K. Quarles provided an update on the Fed’s Covid-19 regulatory and supervisory efforts. When asked during the hearing when the Main Street Lending Program would be operational, he declined to give an exact date but emphasized it is the Fed’s “top priority,” and that he did not anticipate it will take months. When questioned about whether the Fed is taking measures to “ensure businesses are getting equitable access to the [lending] facilities,” Quarles stated that the Fed relies on banks to do the underwriting, but will supervise the banks to make sure the underwriting is done “safely and fairly.”
OCC Comptroller Joseph M. Otting also discussed a range of actions taken by the agency in response to the pandemic and outlined additional OCC priorities and objectives, including its proposal to modernize the Community Reinvestment Act (CRA). Senator Menendez (D-NJ) asked whether the OCC should revisit the proposed CRA rewrite, citing the inability of some small businesses—particularly minority-owned businesses—to obtain relief under the Payroll Protection Program (PPP). In response, Otting argued that the rewrite (done in conjunction with the FDIC—see InfoBytes CRA coverage here) should actually be accelerated “because it will drive more dollars into low and moderate income communities” impacted by the pandemic. However, several Democrats on the Committee disagreed and called for a separate hearing to discuss the CRA proposal.
FDIC Chairman Jelena McWilliams also addressed actions undertaken to maintain stability and to provide flexibility to both banks and consumers. Among other things, McWilliams stated that banks should rely on borrowers’ statements certifying that their economic need is legitimate when making PPP loans. “Our instruction to banks has been to make sure these loans are not being traditionally underwritten [and] to take a look at the certification that the borrower is providing,” McWilliams said during the hearing. She also emphasized that all banks must comply with fair lending laws when making PPP loans, whether or not specific guidance has been issued.
NCUA Chairman Rodney E. Hood also outlined agency measures in response to the pandemic. Among other things, Hood noted that the NCUA has issued guidance to support credit union industry participation in the PPP and approved several regulatory changes concerning the classification of PPP loans for regulatory capital and commercial underwriting purposes.
The following day, the House Subcommittee on Consumer Protection and Financial Institutions also held a roundtable with the federal regulators to discuss Covid-19 responses.
FDIC’s proposal addresses deposit insurance assessment effects of PPP, PPPLF, and MMLF participation
On May 12, the FDIC announced a proposed rulemaking that addresses the deposit insurance assessment effects of participating in the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) and the Federal Reserve Board’s Paycheck Protection Program Lending Facility (PPPLF) and Money Market Mutual Fund Liquidity Facility (MMLF). The FDIC notes that because PPP loans are fully guaranteed by the SBA, and PPPLF and MMLF transactions are conducted with the Board on a non-recourse basis, the proposed rule ensures that participating banks are not subjected to “significantly higher deposit insurance assessments.”
According to FDIC’s Financial Institution Letter, FIL-56-2020, the proposed rule would remove the effect of participating in the programs (i) on various risk measures used to calculate a bank’s assessment rate; (ii) on certain adjustments to a bank’s assessment rate; (iii) by providing an offset to a bank’s assessment for the increase to its assessment base attributable to participation in the MMLF and PPPLF; and (iv) when classifying banks as small, large, or highly complex for assessment purposes. The FDIC is proposing an effective date by June 30 with an application date of April 1 to ensure the changes cover assessments starting in the second quarter of 2020.
Comments on the proposed rule will be accepted for seven days after publication in the Federal Register.
FDIC encourages relief for South Carolina borrowers affected by severe weather
On May 7, the FDIC issued FIL-53-2020 to provide regulatory relief to financial institutions and help facilitate recovery in areas of South Carolina affected by severe storms, tornadoes, and straight-line winds from April 12 through April 13. In the letter, the FDIC encourages institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to borrowers affected by the severe weather, provided the measures “[are] done in a manner consistent with sound banking practices, can contribute to the health of the local community and serve the long-term interests of the lending institution.” Additionally, the FDIC notes that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC states it will also consider relief from certain filing and publishing requirements.
Find continuing InfoBytes coverage on disaster relief guidance here.
FDIC updates Covid-19 FAQs
On May 7, the FDIC updated its list of frequently asked questions for financial institutions affected by Covid-19. The recent updates include the addition of one FAQ describing amendments to Regulation D that remove the six-per-month limit on transfers and withdrawals from savings deposits and one FAQ that discusses additional grace periods for force-placed flood insurance.
Fed, OCC, FDIC respond to Crapo’s PPP support letter
In April, Senator Mike Crapo (R-ID), Chairman of the Senate Banking Committee, received replies to an April 8 letter he sent to the Federal Reserve (Fed), OCC, NCUA, and FDIC, which urged the regulators to “strengthen the Paycheck Protection Program” (PPP) and requested that they provide recommendations to assist the market as well as lenders and borrowers affected by Covid-19.
The Fed highlighted how it has strengthened the PPP, stating it: (i) eased “leverage requirements for community banks”; (ii) “published rules delaying the impact on regulatory capital of new loan-loss accounting standards”; (iii) created a new lending facility for the PPP; (iv) jointly with the FDIC, and OCC, “issued an interim final rule to clarify that a zero percent risk weight applies to PPP loans and to neutralize the regulatory capital effects of participating in the new PPP lending facility, helping preserve the flow of credit to small businesses”; (v) “encouraged institutions to use their capital buffers for their primary purpose: to support safe and sound lending throughout the credit cycle”; and (vi) provided suggestions for “congressional action to improve regulatory flexibility.”
The OCC’s replied that it has taken the following actions, among others, to support the PPP: (i) “encouraged banks to work with customers affected by” the pandemic; (ii) “encouraged banks to use the [Fed’s] discount window”; (iii) encouraged use of capital and liquidity buffers by banks; (iv) issued a joint statement with five regulatory agencies promoting “responsible small-dollar loans to consumers and small businesses”; (v) jointly issued interim final rules regarding regulatory capital and deferral of real estate appraisals; and (vi) coordinated listening sessions on the PPP.
The FDIC stated it is working to provide “necessary flexibility to both banks and their customers.” The agency’s response also enumerated several other actions it has taken to promote the PPP, including that it: (i) created a PPP information page on their website; (ii) shared bank questions and concerns with the Small Business Administration (SBA); (iii) created bank frequently asked questions; (iv) issued a financial institution letter referencing resources from the SBA and the Treasury; (v) continues to “provid[e]…resources to our examination teams so they” can better answer questions from regulated institutions; and (vi) jointly with other regulatory agencies, issued guidance on current expected credit losses methodology and community bank leverage ratio. The FDIC also reported possible supplementary and tier 1 leverage ratio changes.
FDIC issues regulatory relief for areas in Tennessee affected by severe storms
On April 28, the FDIC issued FIL-51-2020 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Tennessee affected by a recent series of severe weather. In the letter, the FDIC encourages institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to borrowers affected by the severe weather, provided the measures are “done in a manner consistent with sound banking practices, can contribute to the health of the local community and serve the long-term interests of the lending institution.” Additionally, the FDIC notes that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC states it will also consider relief from certain filing and publishing requirements.
Find continuing InfoBytes coverage on disaster relief guidance here.
FDIC, Fed extend comment period on proposed living will guidance
On April 27, the FDIC and the Federal Reserve Board announced a 30-day extension to the comment period for the agencies’ proposal to update resolution plan guidance for certain large foreign banking organizations (FBOs). As previously covered by InfoBytes, FBOs are required to submit resolution plans—also known as “living wills”—which detail the strategic plans for their U.S. operations and subsidiaries for rapid and orderly resolution in bankruptcy in the event that the banks fail or fall under material financial distress. The proposed guidance, issued in March, focuses on the FBOs’ derivatives and trading activities and payment, clearing, and settlement activities, and provides additional resolution plan expectations. Comments will now be accepted through June 4. Due to the Covid-19 pandemic, the agencies also state that other upcoming deadlines associated with the resolution planning process may be adjusted.
FDIC encourages relief for Mississippi borrowers affected by severe weather
On April 21, the FDIC issued FIL-47-2020 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Mississippi affected by a recent series of severe weather. In the letter, the FDIC encourages institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to borrowers affected by the severe weather, provided the measures are “done in a manner consistent with sound banking practices, can contribute to the health of the local community and serve the long-term interests of the lending institution.” Additionally, the FDIC notes that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The FDIC states it will also consider relief from certain filing and publishing requirements.
Find continuing InfoBytes coverage on disaster relief guidance here.
FFIEC releases APR, APY computational tools
On April 16, the FFIEC, on behalf of its member agencies, announced the release of two computational tools for annual percentage rates (APR) and annual percentage yields (APY). These web-based tools are intended to assist financial institutions when complying with consumer protection laws and regulations.
The APR Computational Tool is intended to help examiners and financial institutions verify finance charges and APRs included on consumer loan disclosures subject to TILA and Regulation Z, including calculations “related to unsecured and secured installment and construction loans, including real estate-secured loans.” The tool can also be used to verify military annual percentage rates for loans subject to the Military Lending Act. The APY Computational Tool is designed to support the verification of APYs on consumer deposit account disclosures, including advertisements and periodic statements, subject to the Truth in Savings Act and Regulation DD. See FDIC FIL-45-2020 and OCC Bulletin 2020-40 regarding the release of these tools.
Agencies to hold webinar for bankers on loan modifications and reporting
On April 16, the FDIC released FIL-46-2020, announcing a webinar to provide accounting and reporting guidance for bankers pursuant to Section 4013 of the CARES Act and the revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (covered by InfoBytes here). The webinar is scheduled for Friday, April 24 at 3:00 pm EDT and will be jointly hosted by the FDIC, the Federal Reserve, the OCC, and the NCUA. Participants are encouraged to email questions prior to the webinar to asktheregulators@stls.frb.org. To register for the webinar, click here.