Bank Regulatory Provisions in the CARES Act

Bryan Cave Leighton Paisner

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. 

Section 4012 – Temporary Relief for Community Banks.  Lowers the threshold under the Community Bank Leverage Ratio from 9 percent to 8 percent, and obligates regulators to adopt an interim final rules that provides for a reasonable grace period to regain compliance.  Effective upon adoption of an interim final rule and ending on the sooner of the termination date of the national emergency or December 31, 2020.

Section 4013 – Temporary Relief from Troubled Debt Restructurings.  Banks may elect to suspect US GAAP requirements with respect to reporting loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a troubled debt restructuring or requiring impairment.  Requires banking regulators to defer to the determination of the financial institutions making such suspension.  Effective March 31, 2020 and ending on the earlier of December 31, 2020 or the termination date of the national emergency.  Appears largely consistent with regulatory relief already granted by the banking agencies.

Section 4011 – Temporary Lending Limit Waiver.  Authorizes the OCC to permit national banks to exceed their legal lending limit to any particular borrow with respect to loans to nonbank financial companies or any other borrower to the extent the OCC finds such exception to be in the public interest.  OCC approval of individual loans appears to be required.  This waiver lasts until the sooner of the termination date of the national emergency or December 31, 2020.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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