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Bank Regulatory Provisions in the CARES Act

On March 25, 2020, senators released an updated draft of the Coronavirus Aid, Relief, and Economic Security Act (a.k.a the “CARES Act”) (the acronym is so much better than EGRRCPA!) to provide emergency assistance and health care response for individuals, families, and businesses.  Bryan Cave Leighton Paisner’s initial review of the overall Act is available here.

The current draft contains a number of bank regulatory provisions of potential interest to financial institutions of all sizes.

Section 4008 – Debt Guaranty Authority.  Authorizes FDIC to re-implement transaction account guarantee program, subject to cap on amounts insured.  In the 2008 financial crisis, the FDIC provided unlimited insurance for amounts held in noninterest-bearing transaction accounts (i.e. checking accounts that don’t pay interest).  Dodd-Frank prohibited the FDIC from every doing that again.  The CARES Act authorizes the FDIC to provide the program again through December 31, 2020.  Current draft of legislation limits coverage to “a maximum amount” without specifying the amount.  Effectiveness will require FDIC action.  Current draft of legislation also allows the NCUA to provide comparable insurance for credit unions, and permits the NCUA to provide insurance on an unlimited amount in such accounts.  Since its formation, no depositor has ever lost a penny of FDIC-insured funds.

Section 4014 – Optional Temporary Relief from Current Expected Credit Losses.  No financial institution or holding company shall be required to comply with FASB’s current expected credit loss methodology (i.e. CECL) (which otherwise is scheduled to become effective for the largest public bank holding companies for Q1 2020).  Effective from adoption of the Act and ending on the earlier of December 31, 2020 or the termination date of the national emergency. 

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Banking Regulators Clarify TDR Relief for COVID-19 Modifications

On March 18, 2020, the FDIC issued guidance in its Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 indicating the potential for relief from the Troubled Debt Restructuring (TDR) reporting requirements.

Financial institutions should determine whether loans with payment accommodations made to borrowers affected by COVID-19 should separately be reported as TDRs in separate memoranda items for such loans in regulatory reports. A TDR is a loan restructuring in which an institution, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. However, a loan deferred, extended, or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not reported as a TDR.

FDIC FAQ published March 18, 2020

While appreciated, that guidance left a lot of discretion to the regulators to second guess the interpretations by financial institutions and essentially just repeated existing guidance. On Sunday, March 22, 2020, the federal banking regulators collectively issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. This new Interagency Statement fortunately goes further.

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Financial Services Regulators Respond to COVID-19

In just a few short weeks, COVID-19 has had far reaching impacts on public health and the global economy. Regulators overseeing banks and non-bank financial services companies are trying to maintain operations, adapt oversight models and promulgate COVID-19 crisis-specific directives and guidance.

As with the crisis itself, these developments are fast-moving. We anticipate facts and details to change from day-to-day. To be clear, this is the first post on COVID-19 on BankBCLP.com, but it will most certainly not be the last. On our firm website, we are tracking regulatory developments that could have a broad impact across the industry.

BCLP Summary of Financial Services COVID-19 Regulatory Response

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