Yesterday, on Sunday, March 22, 2020, U.S. Senate Republicans released the latest version of their COVID-19-related stimulus bill, the Coronavirus Aid, Relief, and Economic Security Act or CARES Act. The bill contains several measures intended to provide relief to banks, their customers, and broader financial markets.
The latest version of the CARES Act includes the following relevant provisions:
- Treasury Loan and Guarantee Authority. Section 4003 of the bill would provide the U.S. Department of the Treasury with the authority to make up to $500 billion of emergency loans, guarantees, or investments in support of Federal Reserve programs or facilities that provide liquidity to the financial system in support of lending to eligible businesses (including airlines and other U.S. businesses that have not otherwise received adequate economic relief under the Act), states, and municipalities. Section 4003, which also authorizes Treasury to use a portion of these funds to lend or issue guarantees directly to businesses, including up to $50 billion of loans or guarantees for the benefit of passenger airlines, has reportedly been a focus of Democratic opposition to the bill.
- FDIC Guarantee Authority. Section 4008 would provide the requisite Congressional authorization under section 1105 of the Dodd-Frank Act, 12 U.S.C. § 5612, for the FDIC to guarantee, through December 31, 2020, the obligations of solvent insured depository institutions and their affiliates, including deposit accounts, without a maximum amount. The bill would also give the NCUA authority to increase share insurance coverage on noninterest-bearing transaction accounts at federally-insured credit unions, also through December 31, 2020.
- OCC Authority to Waive Loan Limits. Section 4011 would amend the single borrower loan limit framework that applies to national banks under 12 U.S.C. § 84 (which further applies to federal savings associations under 12 U.S.C. § 1464(u)(1)) by allowing the Comptroller of the Currency to waive such limits for loans to nonbank financial companies (as defined in the Dodd-Frank Act), until the earlier of the termination of the public health emergency declared by the Secretary of Health and Human Services and December 31, 2020.
- Temporary Reduction in Community Bank Leverage Ratio. Section 4012 would temporarily reduce the minimum community bank leverage ratio to 8 percent, from its currently level of 9 percent, until the earlier of the termination of the public health emergency and December 31, 2020. The community bank leverage ratio framework allows certain highly capitalized banking organizations with less than $10 billion in total consolidated assets to avoid calculating or reporting risk-based capital ratios. Section 4012 would also require the federal banking agencies to give a community bank a “reasonable grace period” if it falls out of compliance with the community bank leverage ratio during the same period.
- Optional Suspension of Troubled Debt Restructurings Under GAAP. Section 4013 would allow financial institutions to suspend requirements under Generally Accepted Accounting Principles (“GAAP”) for loan modifications relating to the COVID-19 pandemic if the loan modification is made in the period from March 1, 2020 to the date that is 60 days after the end of the public health emergency for a loan that was not more than 30 days past due as of December 31, 2019.
- Temporary CECL Relief. Section 4014 would allow banking organizations not to be subject to the Current Expected Credit Losses (CECL) methodology until the earlier of the termination of the public health emergency and December 31, 2020.
- Treasury Money Market Guarantee Authority. Section 4015 would temporarily suspend the restrictions of the Emergency Economic Stabilization Act of 2008 on Treasury’s use of the Exchange Stabilization Fund, thereby permitting Treasury to establish a guarantee program for the U.S. money market mutual fund industry. Any guarantee established under this authority would need to terminate by December 31, 2020.
- SBA Subsidies for Certain Loan Repayments. Section 1112 would authorize the SBA to pay principal, interest, and fees on certain loans for a six month period beginning on the next payment date. Covered loans would include loans guaranteed by the SBA under section 7(a) of the Small Business Act (including Community Advantage loans) or title V of the Small Business Investment Act (e., 504 loans), or made by an intermediary to a small business concern using grants received under the Microloan Program established under section 7(m) of the Small Business Act. This provision would also require the SBA to “encourage” the federal banking agencies and state bank regulators not to require lenders to increase their reserves on account of receiving the payments from the SBA.
- Relief for Paycheck Protection Program Loans. Section 1102(a)(2) would establish a Paycheck Protection Program under section 7(a) of the Small Business Act for loans to small businesses to cover payroll costs, health insurance, salaries, mortgage payments, rent, and utilities. A loan made under the program would receive a zero percent risk weight under the bank regulatory capital rules (though would not receive any relief for leverage ratio purposes), and would not be subject to compliance with GAAP’s requirements for troubled debt restructurings.
After Republicans unveiled the legislation, Senate Democrats blocked a motion to advance the bill in a party-line vote. After the vote, Senate Minority Leader Chuck Schumer (D-NY) stated that “we’re closer than we’ve been at any time over the past 48 hours to an agreement.”