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Federal Reserve Board delays changes to provision of intraday credit to foreign banks
On March 24, the Federal Reserve Board announced that it will delay planned revisions to their procedures that govern providing intraday credit to U.S. branches of foreign banking organizations. The amendments were originally approved on April 1, 2019, and were scheduled to become effective on April 1, 2020. The FRB is delaying implementation for six months, until October 1, 2020, to provide foreign banking organizations and the Federal Reserve Banks allow additional time to allow both the with additional time to focus on “heightened priorities” instead of establishing new arrangements to comply with the proposed amendments.
Federal Reserve Board files reports with Congress on newly established lending facilities
On March 25, the Federal Reserve Board filed three reports to Congress pursuant to Section 13(3) of the Federal Reserve Act on the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, and the Money Market Mutual Fund Liquidity Facility. Each report provides Congress with details on the facilities, including the structure and basic terms of the facilities. The announcement of the lending facilities was previously covered here.
New York Fed releases FAQs on the Commercial Paper Funding Facility
On March 25, the Federal Reserve Bank of New York released FAQs to address programmatic inquiries about the newly-created Commercial Paper Funding Facility (CPFF), which will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV). The FAQs address, among other things, how the CPFF will work, when the CPFF will become operational, which issuers will be eligible to sell commercial paper to the SPV, whether issuers are required to register with the CPFF, and what types of commercial paper will be eligible for purchase by the SPV.
CSBS asks Fed and Treasury to create liquidity facility to support mortgage servicers
On March 25, CSBS President and CEO John W. Ryan sent a letter to Federal Reserve Board Governor Jerome Powell and Treasury Secretary Steven Mnuchin encouraging the agencies to create a liquidity facility under Section 13(3) of the Federal Reserve Act to support mortgage servicers “in anticipation of widespread borrower payment forbearance.” According to the letter, CSBS members—state regulatory agencies responsible for regulating bank and nonbank financial companies—have expressed concerns regarding liquidity and solvency in the mortgage servicing sector, and are particularly focused on monitoring the financial condition of nonbank mortgage servicers. Without a liquidity facility, CSBS warned that “mortgage servicers will experience a severe liquidity shortage that may threaten their continued viability, and by extension, the health of the nation’s housing finance market.”
Federal Reserve announces new measures to support the economy
On March 23, the Federal Reserve announced various new measures to support the economy during the Covid-19 crisis. The actions include:
- Purchasing Treasury securities and commercial and agency mortgage-backed securities to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.
- Establishing a new program that will provide up to $300 billion in new financing to support the flow of credit to employers, consumers, and businesses. The Treasury Department will provide $30 billion in equity to these facilities by using the Exchange Stabilization Fund (ESF).
- Establishing two facilities to support credit to large employers: (i) the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance; and (ii) the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.
- Establishing a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. The TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.
- Facilitating the flow of credit to municipalities by expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.
- Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.
Federal Reserve announces technical change to total loss absorbing capacity buffer requirements
On March 23, the Federal Reserve Board announced a technical change to support the U.S. economy and permit banks to continue lending to creditworthy households and businesses. The interim rule will phase in gradually the automatic restrictions associated with a firm's "total loss absorbing capacity” (TLAC) buffer requirements, if the levels decline, and is intended to facilitate the use of firms’ buffers to promote lending activity.
Federal Reserve Board establishes new program to support flow of credit
On March 20, the Federal Reserve Board expanded its financial support programs of support through creating of the Money Market Mutual Fund Liquidity Facility (MMLF). Under this program, the Federal Reserve Bank of Boston will be able to make loans to eligible financial institutions, to be secured by certain assets purchased from single state and other tax-exempt municipal money market mutual funds. The Federal Reserve Board also provided a term sheet that includes additional detail on the MMLF, and an FAQ page to answer questions relating on the Money Market Mutual Fund Liquidity Facility (MMLF). The FAQs answer questions relating to the purpose and design of the program, borrower information (e.g., borrower eligibility, required borrowing documents), collateral requirements, loan terms (e.g., loan rates, maturity date), and accounting and regulatory implications, among others.
Fed announces international coordinated liquidity international action
On March 20, the Federal Reserve Board announced a coordinated action with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank “to further enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements” To achieve this, the central banks have agreed to increase the frequency of 7-day maturity operations from weekly to daily starting March 23 and continuing through April. The central banks also will continue to hold weekly 84-day maturity operations.
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.