Banking Regulators Continue to Provide COVID-19 Relief

During the past week, federal and state banking regulators have announced a number of actions designed to provide further relief to financial institutions as the institutions continue to work with their customers to address the effects of the coronavirus (COVID-19) pandemic. This article serves as a supplement to our previous alerts on these provisions, which can be accessed here and here. The actions, many of which revise or clarify previously announced actions or implement CARES Act mandates, include:

• interim final rule implementing CARES Act Section 4012, which requires the agencies to temporarily lower the Community Bank Leverage Ratio (CBLR) to 8% beginning in the second calendar quarter of 2020 through December 31, 2020, with community banking organizations having until January 1, 2022 before the minimum CBLR returns to 9% (April 6, 2020);
• revisions to the March 22, 2020 Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus (April 7, 2020):
  • encouraging financial institutions to work constructively with borrowers adversely affected by COVID-19, stating that prudent loan modification programs will be viewed as positive actions that can effectively mitigate adverse impacts on borrowers due to COVID-19, and lead to improved loan performance and reduced credit risk;
  • reminding institutions that, when they work with borrowers to modify loans, to comply with consumer protection requirements, including fair lending laws and providing the opportunity for all borrowers to benefit from these arrangements. However, the agencies stated they do not expect to take public enforcement actions on institutions whose actions were related to the COVID-19 national emergency, made good faith efforts to support borrowers and comply with the consumer protection requirements, and responded to any needed corrective action; and
  • providing accounting and regulatory reporting guidance, including guidance under the temporary relief from troubled debt restructuring accounting for COVID-19 related loan modifications CARES Act Section 4013.
• interim final rule clarifying that loans made under the SBA Paycheck Protection Program (PPP) will carry a zero risk weight under regulatory capital rules (including risk-based and leverage capital ratios and the CBLR) because there is no credit or market risk associated with PPP loans. (April 9, 2020)
• the Federal Reserve’s announcement of:
  • a new PPP Lending Facility under which Federal Reserve Banks will extend non-recourse loans to PPP lenders, which will be collateralized by the PPP loans, and
  • a new Main Street Loan Facility Program to provide up to $600 billion in loans for small and mid-sized businesses (with up to 10,000 employees having no more than $2.5 billion in 2019 revenues). The Federal Reserve will purchase 95% of the loans, while the originating bank will retain 5% of the loan. Businesses borrowing under the PPP also may borrow under the Main Street Loan Facility Program. (April 9, 2020)
• an announcement that March 31, 2020 Call Reports may be filed up to 30 days after the official April 30, 2020 filing deadline, although institutions should contact their primary federal regulator in advance of the official filing date if they anticipate a delayed submission. (April 9, 2020)
• revised financial institution Call Reports and other reporting forms to reflect recent COVID-19 related changes to regulatory capital and other requirements. (April 9, 2020)

In response to the coronavirus (COVID-19) pandemic, Lewis Rice has formed a COVID-19 Task Force which brings together subject matter authorities from various practice areas within the Firm who stand ready to assist our clients as they navigate these challenging and evolving issues. We will continue to monitor the myriad legal and other developments that may impact our banking clients and all of our business clients who have outstanding loans.

If you have legal questions related to COVID-19, please reach out to the author above or another member of the Task Force.