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Top Story Lending Related

04/09/2020

PPP FAQ updated again

The Treasury/SBA FAQ document for PPP loans was updated yesterday. Two changes addressed lender concerns in additions to the FAQ:

  • Question 19: SBA clarified that lenders may use their own note or an SBA form. The agency has released its own form, but it may be revised to address industry feedback to meet lenders’ operational needs.
  • Question 20: The lender must make the first disbursement of the loan no later than 10 calendar days after the loan is approved.

04/09/2020

Fed makes temporary change to Wells Fargo restrictions

The Federal Reserve Board announced Wednesday that it will temporarily and narrowly modify the growth restriction on Wells Fargo & Company so that it can provide additional support to small businesses. The change will only allow the firm to make additional small business loans as part of the Paycheck Protection Program, or PPP, and the Federal Reserve's forthcoming Main Street Lending Program.

The Board will require benefits from the PPP and the Main Street Lending Program to be transferred to the U.S. Treasury or to non-profit organizations approved by the Federal Reserve that support small businesses. The change will be in place as long as those facilities are active.

The Board's growth restriction was implemented in February 2018 because of widespread compliance and operational breakdowns at Wells Fargo that resulted in harm to consumers and because the company's activities were ineffectively overseen by its board of directors. The growth restriction provides an overall cap on the size of the firm's balance sheet. The change announced Wednesday provides additional support to small businesses hurt by the economic effects of the coronavirus by allowing activities from the PPP and the Main Street Lending Program to not count against the cap.

04/08/2020

G.19 consumer credit

The Federal Reserve has posted February 2020 G.19 Consumer Credit data. In February, consumer credit increased at a seasonally adjusted annual rate of 6-1/2 percent. Revolving credit increased at a 4-1/2 percent annual rate, while nonrevolving credit increased at a 7 percent annual rate.

04/08/2020

OCC supports FinCEN’s responses to COVID-19

Bulletin 2020-34 has been issued by the OCC in support of FinCEN’s regulatory relief and risk-based approach for financial institution compliance to COVID-19. The FinCEN BSA Notice provides for certain regulatory relief under the risk-based approach to BSA compliance, including exempting from beneficial ownership requirements new loans extended to existing customers under the CARES Act Paycheck Protection Program (under certain conditions). The OCC supports this approach and encourages all banks to follow a risk-based approach to managing their BSA compliance programs. When evaluating a bank’s BSA compliance program, the OCC will consider the actions taken by banks to protect and assist employees, customers, and others in response to the COVID-19 pandemic, including any reasonable delays in BSA report filings, beneficial ownership verification or re-verification requirements, and other risk management processes. Banks are encouraged to contact their examiners if they anticipate delays.

04/08/2020

Revised interagency statement on COVID-19-related loan modifications

The federal financial institution regulatory agencies (the agencies), in consultation with state financial regulators, have issued a revised interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. The revised statement also provides the agencies' views on consumer protection considerations.

The revised statement—

  • Clarifies the interaction between the interagency statement issued on March 22, 2020, and the temporary relief provided by Section 4013 of the CARES Act signed into law on March 27, 2020. Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications as troubled debt restructurings (TDRs).
  • Provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital.

The agencies encourage financial institutions to work with borrowers and will not criticize institutions for doing so in a safe-and-sound manner. 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.

The agencies' examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs. Regardless of whether modifications are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.

The FDIC issued FIL-36-2020 repeating the information in the joint press release, and noting that it has moved its FIL-22-2020, dated March 22, 2020, to inactive status.

04/08/2020

Treasury has updated its PPP FAQs

The Treasury Department has updated its FAQ document on Paycheck Protection Program Loans. Participating banks should "bookmark" that page and check it regularly for updates.

The changes to the FAQs as of April 6 provide these clarifications:

  1. That lenders may rely on borrower certifications as to the applicability of affiliation rules (question 4).
  2. That lenders do not need to re-verify beneficial ownership information for existing customers. (If participating depository institutions have not yet collected beneficial ownership information on an existing customer, they are not required to do so when that customer applies for PPP loans, unless the lender's risk-based BSA compliance program indicates otherwise.) (question 18)
  3. How payroll is defined under the CARES Act, including the calculation of non-cash benefits and coverage of paid leave. (Various questions)
  4. Methods for determining payroll to calculate maximum loan amounts. (various questions)
  5. That lenders who processed applications based on the April 2 interim final rule may rely on the laws, rules and guidance available at the time. (question 17)

Also, the SBA has approved and made available a promissory note that can be used for PPP loans. The agency has also established a new lender gateway at connect.sba.gov to be used for submitting loan authorization requests. For updated lender information on the SBA's Paycheck Protection Program, access the Lender Forms and Guidance section of its Paycheck Protection Program webpage.

04/08/2020

Fed CRA evaluations released in March

Our monthly review of the Federal Reserve's Community Reinvestment Act performance evaluation releases reveals that 16 evaluations were made public in March, all with ratings of Satisfactory or better. We congratulate two Missouri banks that received ratings of Outstanding (links are to their evaluation reports):

04/07/2020

Fed encourages participation in SBA and Treasury relief programs

The Federal Reserve Board has issued SR 20-10 to inform supervised financial institutions about several forms of relief available to small businesses affected by COVID-19 as a result of the CARES Act. The Federal Reserve encouraged financial institutions to consider participating in programs administered by the SBA and Treasury. The programs include:

  • The Economic Injury Disaster Loan program under Section 7(b) of the Small Business Act, which provides funds to small businesses to cover economic injury resulting from the disaster, such as a loss of revenue; and
  • The Paycheck Protection Program, which provides loans to encourage certain qualified small businesses to retain employees through the COVID-19 pandemic and includes loan forgiveness subject to certain conditions

The letter includes links to the SBA and Treasury websites on their COVID-19-related programs. Consistent with Federal Reserve statements on institutions working with borrowers affected by COVID-19, Federal Reserve examiners will not criticize supervised institutions that prudently use these programs. Information on the Federal Reserve’s COVID-19 supervisory and regulatory actions, as well as responses to questions from financial institutions, is available on the Board’s public website, which is updated on a regular basis.

04/07/2020

Fed to establish facility for lending to small businesses

The Federal Reserve Board has announced that, to facilitate lending to small businesses via the Small Business Administration's Paycheck Protection Program (PPP), the Federal Reserve will establish a facility to provide term financing backed by PPP loans. Additional details will be announced this week.

04/07/2020

Temporary reduction of Community Bank Leverage Ratio

The Federal Reserve Board, FDIC and OCC announced yesterday they have issued two interim final rules to provide temporary relief to community banking organizations. The changes implement Section 4012 of the CARES Act, which requires the agencies to temporarily lower the community bank leverage ratio to 8 percent. The two rules will modify the community bank leverage ratio framework so that:

  • Beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8 percent or greater and meets certain other criteria may elect to use the community bank leverage ratio framework; and
  • Community banking organizations will have until January 1, 2022, before the community bank leverage ratio requirement is re-established at greater than 9 percent.

Under the interim final rules, the community bank leverage ratio will be 8 percent beginning in the second quarter and for the remainder of calendar year 2020, 8.5 percent for calendar year 2021, and 9 percent thereafter. The interim final rules also maintain a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1 percent below the applicable community bank leverage ratio.

The agencies are providing community banking organizations with a clear and gradual transition back to the 9 percent leverage ratio requirement previously established by the agencies. This transition will allow community banking organizations to focus on supporting lending to creditworthy households and businesses given the recent strains on the U.S. economy caused by the coronavirus.

The changes will be effective as of the publication of the rules in the Federal Register and the agencies will accept comments on the interim final rules for 45 days after publication.

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