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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.
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.
Fed announces temporary swap lines with nine countries
On March 19, the Federal Reserve announced the establishment of temporary U.S. dollar liquidity arrangements (swap lines) with the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank (Denmark), the Bank of Korea, the Banco de Mexico, the Norges Bank (Norway), the Reserve Bank of New Zealand, the Monetary Authority of Singapore, and the Sveriges Riksbank (Sweden). These facilities are designed to “help lessen strains in global U.S. dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad.”
Fed recalibrates supervisory activities during Covid-19 pandemic
On March 24, the Federal Reserve (Fed) released a statement regarding adjustments to supervisory activities that the agency is making as a result of Covid-19. Among the changes, the Fed plans to (i) “temporarily reduce its examination activities,” including ceasing regular exam activities for banks with less than $100 billion in assets, unless the exam is critical to safety and soundness or consumer protection, or to address urgent or immediate needs; (ii) conduct all examination activities off-site; (iii) “focus on monitoring and outreach”; (iv) provide an additional 90 days to financial institutions “for resolving non-critical existing supervisory findings”; and (v) “work with financial institutions to understand the specific issues they are facing.” Those institutions subject to the upcoming Comprehensive Capital Analysis and Review must submit their capital plans by April 6.
Special Alert: Fed offers billions through emergency credit facilities
On March 23, the Federal Reserve announced that it is establishing and expanding a number of facilities to provide powerful support for the flow of credit to large U.S. employers and other businesses and families in the midst of the Covid-19 pandemic.
The Fed’s facilities and related actions are rooted in its authority related to financial markets under Section 13(3) of the Federal Reserve Act, but creatively expand the reach of the assistance the Fed may provide relative to the financial-crisis era legislation last addressed by the Dodd-Frank Act, including by using special purpose vehicles (SPVs) backed by the U.S. Treasury to purchase assets, which now include corporate bonds. In the COVID-19 crisis, we see the Fed’s use of Section 13(3) not targeted principally at systemically important financial institutions, but rather at the broader economy, including financial and nonfinancial businesses, large and small. Eligibility under these programs involves factors in Section 13(3) itself, as amended by the Dodd Frank Act, the Fed’s respective term sheets, and the economic stimulus legislation pending in Congress.
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Click here to read the full special alert.
If you have any questions regarding the Fed’s new facilities or other related issues, please contact a Buckley attorney with whom you have worked in the past. You can also visit our Covid-19 News & Resources page for a compendium of issuances by federal and state agencies, as well as GSEs and other sources.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.)