CEIS Review recognizes that the coronavirus pandemic is causing tremendous hardship across the world. It is everyone’s priority to care for those afflicted and to minimize the further spread of the virus. While great uncertainty remains, it has become clear that our economy will face severe disruptions.
Challenges in the Financial Institutions
Regulatory agencies recognize the impact COVID-19 has caused on financial institutions when it concerns their customers, members, and daily operations. The regulatory agencies stated that they will be provide appropriate regulatory assistance to affected institutions.
Regulatory agencies understand at this time that many financial institutions face current staffing and other challenges. With these operational challenges, it is stated that the regulators will provide a more flexible schedule in the affected communities. Which has led to regulators to schedule examinations or inspections to reduce disruption and burden on the financial institutions (1).
During this time, regulatory agencies are encouraging financial institutions to work with the borrowers, will not be criticize for doing so in a safe and sound manner. This will also not affect institutions to automatically categorize loan modifications as trouble debt restructurings (TDRs). This statement also provides supervisory views on past-due and non-accrual regulatory reporting of loan modification.
Short-term modifications that are made in response to COVID-19 to borrowers who remained current prior to any relief are not TDRs. An example of these short-term modifications is, six months—modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant (2).
With these modifications agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected.
The Federal Reserve’s role is guided by its mandate from Congress to promote the stability of the financial system. In support of this, the Federal Reserve is using its full range of authorities to provide powerful support for the flow of credit to American families and businesses (2). These actions include:
- The Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy. The FOMC had formerly announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. In addition, the FOMC will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases (3).
- Supporting the flow of credit to employers, consumers, and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing. The Department of the Treasury, using the Exchange Stabilization Fund (ESF), will provide $30 billion in equity to these facilities (3).
- Establishment of two facilities to support credit to large employers – the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.
- Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. The TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.
- Facilitating the flow of credit to municipalities by expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.
- Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.
In addition to the above information, the Federal Reserve expects to announce the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA (2).
Flow of credit to households and businesses
Over the past week the Federal Reserve has taken the following actions to support the flow of credit to households and businesses. Which consist of (2):
- The establishment of the CPFF, the MMLF, and the Primary Dealer Credit Facility;
- The expansion of central bank liquidity swap lines;
- Steps to enhance the availability and ease terms for borrowing at the discount window;
- The elimination of reserve requirements;
- Guidance encouraging banks to be flexible with customers experiencing financial challenges related to the coronavirus and to utilize their liquidity and capital buffers in doing so;
- Statements encouraging the use of daylight credit at the Federal Reserve.
These actions will help to support the wide range of markets and institutions, thereby supporting the flow of credit in the economy.
Federal Reserve Board and Regulatory agencies are updating information continuously and information above is subject to change.
- FDIC. FDIC . FDIC. [Online] March 9, 2020. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200309a.htm.
- —. Federal Reserve announces extensive new measures to support the economy. [Online] March 23, 2020. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm.
- —. Federal Reserve issues FOMC statement. FDIC. [Online] March 16, 2020. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm.
- —. Agencies provide additional information to encourage financial institutions to work with borrowers affected by COVID-19. FDCI. [Online] March 22, 2020. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200322a.htm.
- Posted by Justin Hill
- On Monday March 30th, 2020
- 0 Comments