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FDIC, OCC, NCUA identify essential critical infrastructure workers during Covid-19
On March 26, the FDIC issued FIL-25-2020 stating that the financial services sector is a “critical infrastructure” during the Covid-19 pandemic pursuant to the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency’s (CISA) March 19 guidance. The guidance is intended to help state, local, and industry partners identify critical infrastructure sectors and essential workers in order to ensure continuity of critical functions. The FIL advises company leadership to provide workers with documentation identifying them as critical infrastructure workers who need “to travel inside restricted areas in order to support critical infrastructure.”
On March 25, the OCC issued similar guidance pursuant to CISA’s guidance. Bulletin 2020-23 encourages essential critical infrastructure workers to maintain normal work schedules during the Covid-19 pandemic, and offers guidance for banks concerning workers who may need to move within and between restricted areas. Essential critical infrastructure workers include those who are needed to: (i) “process and maintain systems for processing financial transactions and services (e.g., payment, clearing and settlement; wholesale funding; insurance services; and capital markets activities)”; (ii) “provide consumer access to banking and lending services,” such as ATMs and armored cash carriers; and (iii) support financial institutions (e.g., staffing data and security operations centers). The workers also include key third party providers who deliver core services. The OCC advises banks to, among other things, update business continuity plans and provide documentation to workers detailing work-related travel.
The NCUA also sent a letter to member boards of directors, chief executive officers, chief information officers, and chief information security officers identifying essential critical infrastructure workers pursuant to CISA’s guidance. Updates to Covid-19 NCUA resources are available here.
Banking regulators urge small-dollar lending during Covid-19 crisis
On March 26, the FDIC, Federal Reserve Board, CFPB, NCUA, and OCC issued a joint statement encouraging banks, savings associations, and credit unions to offer responsible, small-dollar loans to consumers and small businesses affected by Covid-19. The agencies recognize that small-dollar lending can play an important role in meeting credit needs during this time period, and recommend that financial institutions offer loans “through a variety of structures including open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans.” For borrowers experiencing unexpected circumstances who cannot repay a loan as structured, financial institutions are “further encouraged to consider workout strategies designed to help borrowers to repay the principal of the loan while mitigating the need to re-borrow.” All loans, however, should be offered in a manner “consistent with safe and sound practices” that “provides fair treatment of consumers, and complies with applicable statutes and regulations, including consumer protection laws.”
Colorado Division of Banking issues guidance to state-chartered financial institutions
On March 16, the Colorado State Bank Commissioner issued guidance requesting that financial institutions notify the Division of Banking of any issues they may experience involving continuing operations, any unusual account withdrawals, FDIC insurance questions, or any other banking matter. The guidance also requests email notification of any changes to the financial institutions’ banking hours. With respect to scheduled and upcoming examinations, the Division is prepared to “adjust planned supervisory activities as events dictate, and will conduct as much of the examination as possible offsite.”
FDIC asks FASB to delay CECL rules due to Covid-19
On March 19, the FDIC sent a letter to the Financial Accounting Standards Board (FASB) encouraging FASB to delay transitions to and exclusions from certain accounting rules, including (i) excluding Covid-19-related modifications from being considered a concession when determining a troubled debt restructuring classification; (ii) permitting financial institutions an option to postpone implementation of the current expected credit losses (CECL) methodology given the current economic environment; and (iii) imposing a moratorium on the effective date for institutions that are not currently required to implement CECL to allow these financial institutions to focus on immediate business challenges relating to the impacts of Covid-19. CSBS issued a statement on March 20 announcing it fully supports the FDIC’s request, stating the delay will give banks additional time to focus on their customers.
Fed agencies discuss CRA considerations in response to Covid-19
On March 19, the FDIC, Federal Reserve Board, and the OCC issued a joint statement encouraging financial institutions to work with low and moderate-income customers and communities who may be adversely affected by Covid-19. The agencies state that they will provide favorable CRA consideration for financial institution’s retail banking services and retail lending activities in their assessment areas that respond to the needs of affected low and moderate-income individuals, small businesses, and small farms consistent with safe and sound banking practices. These activities may include: (i) waiving certain fees; (ii) easing check-cashing restrictions; (iii) expanding the availability of short-term, unsecured credit and increasing credit card limits for creditworthy borrowers; (iv) providing alternative service options; and (v) offering payment accommodations, such as permitting deferred or skipped payments or extending payment due dates to avoid delinquencies and negative credit bureau reporting. Financial institutions that engage in qualifying community development (CD) activities will also receive favorable CRA consideration, including but not limited to loans, investments, or services that support digital access for low and moderate-income individuals or communities, as well as economic development activities that sustain small business operations. In addition, favorable consideration will also be given to CD activities that help to stabilize communities affected by Covid-19 located in a broader statewide or regional area that encompasses a financial institution’s CRA assessment area, “provided that such institutions are responsive to the CD needs and opportunities that exist in their own assessment area(s).” The joint statement is effective until six months after the national emergency declaration is lifted, unless extended by the agencies.
Fed agencies issue capital and liquidity buffers FAQs
On March 19, the FDIC, the Fed, and the OCC released FAQs regarding the use of capital and liquidity buffers. (See OCC Bulletin 2020-17, “Pandemic Planning: Joint Questions and Answers Regarding Statement About the Use of Capital and Liquidity Buffers.”) The joint questions and answers follow a joint statement issued by the agencies on March 17 to encourage banks to utilize capital and liquidity buffers in order to continue lending activities. The FAQs were created in response to questions provided by banking organizations. Topics covered in the FAQs include (i) liquidity buffers; (ii) capital buffers; (iii) triggers for recovery and resolution plans; and (iv) “total loss-absorbing capacity rule.” See the FDIC announcement here and FIL-20-2020 here.
FDIC posts Covid-19 FAQs for bankers and bank customers
On March 19, the FDIC issued FIL-18-2020, which highlights frequently asked questions for bank customers and banks affected by Covid-19. The FAQs, are available on the FDIC’s Covid-19 webpage. Bank customer FAQs cover questions regarding (i) deposit insurance; (ii) customer access to money; (iii) tips for avoiding scams; and (iv) identity theft, among other things. The FAQs for financial institutions cover topics including working with borrowers affected by Covid-19 through payment accommodations, reporting delinquent loans, and operational issues affecting institutions.
Fed agencies issue regulatory capital interim rule
On March 19, the OCC, the Fed, and the FDIC announced the release of an interim final rule for the Money Market Mutual Fund Liquidity Facility (MMLF) which revises capital rules for activities with the MMLF. The agencies issued the rule to enable financial institutions to “effectively use” the MMLF following its launch by the Fed on March 18. Pursuant to the Federal Reserve Act, the Fed granted authority to establish the MMLF to the Federal Reserve Bank of Boston, allowing it to provide “non-recourse loans to eligible institutions” secured by assets those institutions buy from money market mutual funds. The rule will allow financial institutions to participate because activities with the MMLF will “neutralize the regulatory capital effects of participating in the program” on the institution. The rule is effective immediately and there will be a 45-day comment period.
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.)
FDIC approves creation of de novo banks; proposes new industrial bank rules
On March 18, the FDIC announced (see here and here) the approval of two deposit insurance applications, which will allow for the creation of two de novo industrial banks. The first approval order will permit a California-based company to originate commercial loans to merchants that process card transactions through the company’s payments system and will operate from a main office located in Utah. The second approval order will permit a Nebraska-based corporation to originate and service private student loans and other consumer loans. The new bank will operate as an internet-only bank from a main office located in Utah. Both companies now await approval from the Utah Department of Financial Institutions.
Separately, on March 17, the FDIC announced that it is seeking comments on a proposed rule that would require certain conditions and commitments for approval or non-objection to certain filings involving industrial banks and industrial loan companies (collectively, “industrial banks”), such as deposit insurance, change in bank control, and merger filings. The proposed rule applies to industrial banks whose parent company is not subject to consolidated supervision by the FRB. The proposed rule would require a covered parent company to enter into written agreements with the FDIC and the industrial bank to: (i) address the company's relationship with the industrial bank; (ii) require capital and liquidity support from the parent company to the industrial bank; and (iii) establish appropriate recordkeeping and reporting requirements.
The proposed rule would require prospective covered companies to agree to a minimum of eight commitments, which, for the most part, the FDIC has previously required as a condition of granting deposit insurance to industrial banks. These include: (i) providing a list of all parent company subsidiaries annually; (ii) consenting to examinations of the parent company and its subsidiaries; (iii) submitting to annual independent audits; (iv) maintaining necessary records; (v) limiting the parent company’s representation on the industrial bank’s board to 25 percent; (vi) maintaining the industrial bank’s capital and liquidity requirements “at such levels deemed appropriate” for safety and soundness; (vii) entering into tax allocation agreements; and (viii) implementing contingency plans “for recovery actions and the orderly disposition of the industrial bank without the need for a receiver or conservator.” Comments on the proposed rule will be due 60 days after publication in the Federal Register.