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Fed amends internal appeals process
On March 17, the Federal Reserve Board (Fed) published a final policy, which revises the internal appeals process for institutions that receive an adverse material supervisory determination, as well as its policy regarding the Fed’s Ombudsman. As previously covered by InfoBytes, the Fed requested comments on proposed amendments intended to improve and expedite the appeals process. Among other things, the final amendments (i) clarify that Matters Requiring Attention and Matters Requiring Immediate Attention “are appealable material supervisory determinations”; (ii) “permit an institution’s senior management to file an appeal, provided that management informs the institution’s board of directors of their decision to file an appeal and keeps the board informed of the status of the appeal”; (iii) “permit an institution to request an extension of time to file an appeal in appropriate circumstances”; and (iv) “clarify that, at an institution’s request, the initial review panel must schedule a meeting with the institution.” The amendments and final policy are applicable starting April 1, and the final appeals process will apply to all material supervisory determination appeals initiated after that date.
Fed announces creation of special credit facility
On March 17, the Federal Reserve announced the creation of a special credit facility to serve as a funding backstop to facilitate commercial lending. Under the structure, the Federal Reserve Bank of New York will lend money to the newly created special purpose vehicle (SPV) on a resource basis, to be secured by the commercial loans purchased by the SPV from eligible issuers. There are limits on the maximum amount any single issuer may sell to the SPV. The SPV is scheduled to cease purchasing additional commercial paper on March 17, 2021.
Fed encourages use of discount window
On March 16, the federal bank regulatory agencies issued a statement encouraging depository institutions to use the Federal Reserve’s discount window to meet household and business demands for credit.
Fed encourages banks to use capital and liquidity buffers
On March 15, the Federal Reserve issued a press release that, among other things, encouraged banks to use their capital and liquidity buffers to lend to households and businesses and announced that reserve requirement ratios will be reduced to 0% effective March 26. The Federal Reserve, OCC, and FDIC issued a joint press release on March 17 with the same encouragement.
Fed agencies issue Covid-19 guidance
On March 9, the Federal Reserve, CFPB, FDIC, NCUA, OCC, and CSBS issued a joint release encouraging institutions to “work constructively with borrowers and other customers in affected communities” and stating that “prudent efforts consistent with safe and sound lending practices should not be subject to examiner criticism.” The agencies also acknowledged that institutions would face staffing and other challenges and committed to expedite requests to provide more convenient availability of services and work to minimize the disruption and burden of examinations and inspections.
Financial regulators provide supervisory relief, and VA encourages mortgage relief to veterans after Tennessee tornadoes
On March 12, the OCC, Federal Reserve Board, FDIC, NCUA, and the Tennessee Department of Financial Institutions issued an interagency statement on supervisory practices for financial institutions affected by the recent tornadoes in Tennessee. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should also contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. In FIL-16-2020, the FDIC further encouraged supervised institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to affected borrowers, if done in a manner consistent with sound banking practices. The FDIC stated it will also consider regulatory relief from certain filing and publishing requirements.
Separately, on March 10, the Department of Veterans Affairs (VA) issued Circular 26-20-5 to encourage mortgagees to provide relief for VA borrowers affected by the recent tornadoes in Tennessee. The Circular encourages loan holders and servicers to (i) extend forbearance to distressed borrowers and to members of the National Guard assisting in the recovery efforts; (ii) establish a 90-day moratorium on initiating new foreclosures; (iii) waive late charges; and (iv) suspend credit reporting on affected loans. The Circular will be rescinded April 1, 2021. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief guidance here.
Regulatory agencies issue pandemic planning statement
On March 6, the Federal Reserve, FDIC, OCC, NCUA, Conference of State Bank Supervisors, and the CFPB—through the Federal Financial Institutions Examination Council—issued an Interagency Statement on Pandemic Planning, which, among other things, updates 2006 and 2007 guidance on the need for business continuity plans (BCPs) that address the effects of pandemics. The interagency statement encourages banks to develop plans that, among other things, limit disruption of operations, minimize staff contact by utilizing remote access, and plan for staffing challenges by cross-training bank staff. The statement recommends that the BCPs of financial institutions should include: (i) a preventive program; (ii) a documented strategy that applies to the stages of the pandemic; (iii) a “comprehensive framework of facilities, systems, or procedures to ensure that the institution’s critical operations will continue” (iv) a testing program; and (v) an oversight program to ensure ongoing review and updates to the plan.” The statement also lists websites that offer information on pandemic planning activities. The FDIC and the OCC also published advisories, FIL-14-2020, and OCC 2020-13, respectively.
On March 9, the agencies issued a joint press release encouraging the financial institutions to “meet the financial needs of customers and members affected by” COVID-19. Also, the U.S. Senate sent a letter to trade associations encouraging them to provide job security for employees who self-quarantine or must miss work to take care of sick family members, and to ensure staff will not be required to use all sick leave/vacation leave or “report for work when such leave is exhausted.” The letter urges the entities to work with their customers by waiving late fees and overdraft fees among other measures. The Connecticut Department of Banking issued its own guidance as well regarding temporary remote work, and on March 5, the Washington Department of Financial Institutions issued similar guidance.
ARRC proposes legislation for US dollar LIBOR contracts
On March 6, the Alternative Reference Rates Committee (ARRC) announced a legislative proposal for New York state legislation for U.S. dollar LIBOR contracts intended to “minimize legal uncertainty and adverse economic impacts associated with LIBOR transition.” The ARRC—a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York in cooperation with a number of other federal financial regulatory agencies—explained that it proposed legislation in New York because the state’s law governs a substantial number of financial contracts that refer to U.S. dollar LIBOR. The proposed bill includes measures to address the absence of sufficient LIBOR fallback or transition language in existing financial contracts referencing LIBOR. The proposed legislation would prohibit parties from being able to use the discontinuance of LIBOR as a reason for declaring a breach of contract, establish a recommended benchmark replacement index as a commercially reasonable substitute for LIBOR, and override contractual language referencing a LIBOR-based rate and require use of the benchmark replacement. Contractual parties would also be permitted to mutually opt-out of any mandatory application of the proposed legislation under the bill. The ARRC specifically highlighted that its proposed legislation would not override existing contract language that already delineated a non-LIBOR rate as a fallback to LIBOR.
FDIC and Fed issue proposed living will guidance for FBOs
On March 6, the FDIC and the Federal Reserve Board issued a joint notice and request for comment on their proposal for updates to resolution plan guidance for certain large foreign banking organizations (FBOs). Pursuant to the Dodd-Frank Act, FBOs must 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. Updates in the proposal focus on the FBO’s derivatives and trading activities and payment, clearing, and settlement activities and are informed by responses from FBOs to the prior 2018 FBO guidance and 2019 domestic guidance. In addition, the proposal contains an appendix of frequently asked questions with answers provided by agency staff. The agencies also seek comments “on objective, quantitative criteria to determine its applicability.” Comments must be received by May 5.
Fed finalizes simplified capital rules for large banks
On March 4, the Federal Reserve Board (Fed) released a final rule amending and simplifying the capital rules for large banks, as well as instructions for the 2020 Comprehensive Capital Analysis and Review (CCAR) cycle. The final rule, which is “broadly similar” to the Fed’s April 2018 proposal (covered by InfoBytes here), incorporates a simplified framework that integrates a “stress capital buffer” (SCB) requirement, which will use supervisory stress test results to establish the size of a firm’s stress capital buffer requirement. The stress test—one element of the annual CCAR—helps determine a firm’s capital requirements for the upcoming year. According to the Fed, “[b]y combining the Board’s stress tests—which project the capital needs of each firm under adverse economic conditions—with the Board’s non-stress capital requirements, large banks will now be subject to a single, forward-looking, and risk-sensitive capital framework.” The simplification would result in banks needing to meet eight capital requirements, instead of the current 13. Among other things, the final rule will also (i) increase capital requirements for global systemically important banks and decrease requirements for less complex banks; and (ii) continue to subject all banks to ongoing, non-stress leverage requirements.
The final rule applies to bank holding companies and U.S. intermediate holding companies of foreign banking organizations with more than $100 billion in total consolidated assets, and will take effect 60 days after publication in the Federal Register, with a firm’s first stress capital buffer requirement, as determined under the final rule, effective October 1, 2020.