In some ways, the fallout from the COVID-19 pandemic feels like financial crises of the past. The volatile markets, liquidity freezes, and precipitous decline in demand are certainly reminiscent of 2008.
The difference, however, is that the current situation is a public health crisis, coming at a time when our banks and financial institutions have never been stronger. Because of this, the federal government and banking agencies are calling on financial institutions to take the lead in helping to mitigate the damage to consumers, businesses, and our economy.
The federal banking agencies, along with the other member agencies of the Federal Financial Institutions Examination Council, began by issuing on March 6 an updated Interagency Statement on Pandemic Planning, which identifies actions that financial institutions should take to minimize the potential adverse effects of a pandemic. On March 9, the same agencies jointly encouraged financial institutions to meet the financial needs of customers affected by COVID-19.
As the impact of COVID-19 expands exponentially, the federal banking agencies are acting with an increased sense of urgency to provide banks with the tools to meet customers' financial needs during this stressful time.
This article summarizes what you need to know today and provides a complete timeline of all COVID-19 related actions, guidance, and statements to date from the federal financial regulators. We will continue to update this timeline in the coming days and weeks.
- The ability of banks to continue serving the financial needs of their customers is critical during this crisis, not just for the customers, but for communities and the overall economy.
- The agencies expect banks to work with customers impacted by COVID-19 and to make prudent accommodations where possible.
- Bank actions should be taken with appropriate management oversight and consistent with safe and sound banking practices and applicable law, including consumer financial protection laws.
- Banks should be in regular contact with their examiners.
- The agencies are taking actions to facilitate the flow of credit to households and businesses, including changes to monetary policy.
- The agencies are providing regulatory relief to support banks' efforts to provide financial services to those impacted by the crisis.
Working with Affected Customers. The FDIC and OCC each issued similar statements on March 13, encouraging banks to assist customers and communities affected by COVID-19 and promising regulatory and supervisory assistance. Recognizing the importance of serving the long-term interests of the banks' communities and the financial system, the statements suggest waiving certain fees (e.g., late payment fees and early withdrawal penalties), increasing credit card limits for creditworthy borrowers, offering payment accommodations, and modifying loan terms.
Credit Resources. To support lending and the broader economy, the agencies are taking actions to significantly expand the availability of credit.
- Use of Capital and Liquidity Buffers—The federal banking agencies are encouraging banks to use their capital and liquidity buffers to lend and take other supportive actions in a safe and sound manner. The agencies note that capital and liquidity buffers were designed to provide banks with the means to support the economy in times of stress and to serve households and businesses. The agencies simultaneously issued an interim final rule implementing a technical change to make any automatic limits on capital distribution more gradual.
- Federal Funds Rate—The FRB reduced the target federal funds rate to 0–1/4%, where it will remain until the FRB determines that the economy is on track to achieve the FRB's full employment and price stability goals.
- Discount Window—The federal banking agencies are encouraging depository institutions to use the FRB discount window to support the smooth flow of credit to households and businesses.
- Intraday Credit—In addition to the Discount Window, the FRB wants banks to use the intraday credit provided by Reserve Banks to support the provision of liquidity.
- Reserve Requirement Reduction—Effective March 26, 2020, the FRB has reduced the reserve requirement ratio to 0% for all depository institutions.
- Community Reinvestment Act (CRA)—The federal banking agencies will favorably consider for CRA purposes actions banks take that are responsive to the needs of low- and moderate-income individuals, small businesses, and small farms affected by COVID-19. Such actions may include waiving certain fees, easing restrictions on cashing checks, and taking steps to work with customers as discussed in prior notices. The agencies also reminded banks that favorable consideration will be given to community development activities that help stabilize communities affected by COVID-19.
Regulatory Relief. Given the unusual circumstances of the COVID-19 crisis, the FDIC and the OCC have indicated that they will work with banks at the supervisory level to allow banks to more easily respond to the needs of their customers.
- Supervision—The agencies will consider the unusual circumstances when reviewing banks' financial condition. Prudent efforts to modify loan terms during the crisis will not be subject to examiner criticism. The agencies recognize there may be other useful accommodations, and they will support and not criticize those efforts conducted in a safe and sound manner.
- Examination—The agencies will work with exam scheduling to minimize disruption and will conduct examinations off-site where possible.
- Reporting—The agencies will work with banks impacted by the crisis and will not assess penalties or take other supervisory action with regard to reporting responsibilities where the banks have taken reasonable and prudent steps to comply.
- Alternative Service Options—The agencies will expedite, as appropriate, any request to provide more convenient availability of services in affected communities.
We understand that events are moving rapidly and that it is difficult to find the right information when there is so much noise. Banks are being asked to step up to meet this extraordinary challenge. But financial institutions are also dealing with the effects of COVID-19: employees are scattered, offices are closed, and uncertainty weighs heavily on decision making.
Therefore, we—banks, regulators, communities, and attorneys—must meet this challenge together. Our team will be sorting through and analyzing the regulatory announcements to help banks and financial institutions find the answers they need.
Timeline of Actions, Guidance, and Statements from the Federal Financial Agencies in Response to the COVID-19 Pandemic
Joint issuances of the federal banking agencies are included with the Federal Reserve issuances.
U.S. Treasury Secretary Steven T. Mnuchin formally approves establishment of a Commercial Paper Funding Facility (CPFF) pursuant to Section 13(3) of the Federal Reserve Act, and Regulation A of the Federal Reserve Board.
Secretary Mnuchin formally approves establishment of a Primary Dealer Credit Facility (PDCF) pursuant to Section 13(3) of the Federal Reserve Act.
Secretary Mnuchin formally approves establishment of a Money Market Mutual Fund Liquidity Facility (MMLF) pursuant to Section 13(3) of the Federal Reserve Act.
The Treasury Department and IRS issue guidance extending the deadline for the payment of federal taxes from April 15, 2020 to July 15, 2020. Notably, the extension does not apply to the filing deadline, which remains April 15. The "Applicable Postponed Payment Amount," or maximum amount for which payment may be postponed until July 15, is $10 million for each consolidated group (or each C corporation that does not join in a consolidated group), and $1 million for all other affected taxpayers.
The Federal Reserve, together with other FFIEC member agencies, issues joint press release encouraging financial institutions to meet financial needs of customers and members affected by coronavirus.
The Federal Reserve, together with other FFIEC member agencies, issues updated interagency statement on pandemic planning.
The Federal Reserve takes actions to promote its statutory obligation of ensuring price stability and maximum employment during the COVID-19 crisis. The Fed encourages lending institutions to utilize the discount window in order to promote lending by reducing the primary credit rate to 0.25 percent; promotes the use of intraday credit; and encourages banks to dip into reserves and capital buffers to promote increased lending.
The Federal Reserve announces a "coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements." These standing facilities provide a backstop in global funding markets.
Following the March 15 statement, the Federal Reserve issues a release encouraging banks to utilize the discount window to support liquidity.
The Federal Reserve, in coordination with the FDIC and OCC, announces an interim final rule that provides an increase in flexibility to banks to dip into reserves in order to enhance lending. According to the rule, banks will be allowed to increase their debt levels in order to access capital reserves.
Following Treasury approval, the Federal Reserve announces the establishment of a CPFF to "directly finance a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies." Pursuant to Section 13(3) of the Federal Reserve Act, the Treasury pledges the provision of $10 billion in capital out of the Emergency Stabilization Fund to serve as a liquidity backstop, effective March 17, 2020.
Following Treasury approval, the Federal Reserve announces the establishment of a PDCF "offer[ing] overnight term funding" to extend credit to primary dealers. The PDCF will provide overnight and term funding for primary dealers beginning on March 20, 2020, and pursuant to the powers authorized under Section 13(3) of the Federal Reserve Act.
The Federal Reserve, in coordination with the FDIC, establishes a Money Market Mutual Fund Liquidity Facility (MMLF). "The Federal Reserve Bank of Boston will make loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds." Pursuant to Section 13(3) of the Federal Reserve Act, the Treasury Department will provide $10 billion in credit protection from the Emergency Stabilization Fund.
In coordination with the FDIC and OCC, the Federal Reserve issues an interim final rule to the MMLF.
The Federal Reserve sets up "temporary U.S. dollar liquidity arrangements" or swap lines with other central banks from around the world. According to the statement, "these facilities, like those already established between the Federal Reserve and other central banks, are designed to help lessen strains in global U.S. dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad."
In coordination with the FDIC and OCC, the Federal Reserve issues a Joint Statement on CRA Consideration for Activities in Response to COVID-19 highlighting qualifying community development activities relevant to COVID-19 and reminding banks that favorable consideration will be given to activities in broader state or regional areas that include the bank's assessment area if the bank is responsive to the community development needs of its own assessment area.
March 13, 2020
FDIC issues a Financial Institution Letter (FIL) "encourag[ing] financial institutions to take prudent steps to assist customers and communities affected by the Coronavirus Disease."
FDIC issues a letter to the Financial Accounting Standards Board (FASB) urging a delay of the transition to CECL.
March 19, 2020
FDIC publishes Frequently Asked Questions for financial institutions and consumers affected by the coronavirus.
FINCEN issues a public statement encouraging financial institutions "to communicate concerns related to the Coronavirus disease (COVID 19) and to remain alert to related illicit financial activity."
OCC issues a bulletin on "Pandemic Planning" in which it "encourages banks to take steps to meet the financial services needs of customers adversely affected by COVID-19-related issues."
CFTC issues numerous no-action letters from the Division of Swap Dealer and Intermediary Oversight (DSIO) to provide "relief to futures commission merchants, introducing brokers, swap dealers, retail foreign exchange dealers, floor brokers, and other market participants in response to the COVID-19 (coronavirus) pandemic."
The SEC's Division of Trading and Markets issues a no-action letter for Consolidated Audit Trail (CAT) reporting compliance through May 20, 2020, with the possibility of further extension(s).
FHFA, in coordination with HUD, directs suspension of all evictions and foreclosures for FHA-backed mortgages, and Fannie/Freddie-backed mortgages for "at least 60 days."
FHFA Director Mark Calabria announces a delay in the agency's rulemaking effort to restructure Fannie Mae and Freddie Mac's capital framework. Calabria explained, "[w]e are delaying the opening of existing comment period until we have some certainty on what the current overall situation is. We're going to be cognizant of the fact that it may be very difficult for people to weigh in."