WASHINGTON – At the onset of the coronavirus pandemic, Congress exempted banks and credit unions from a number of regulations so they could flexibly help commercial and residential customers weather the economic shock.
These regulatory bailouts are expected to expire on December 31, but with the virus still raging and many households and businesses still struggling, financial institutions are calling on Congress and regulators to extend them to the next year. And while it is unclear whether regulators will act on their own to extend the relief, lawmakers from both parties have expressed support for continued pandemic relief.
The Coronavirus Aid, Relief and Economic Security Act, among other things, exempted financial institutions from the need to classify loan changes related to the pandemic as problematic debt restructuring by the end of 2020, and allowed them to delay compliance with the accounting standard for currently expected Board of Directors loan losses until the end of 2020 End of the year. The legislation also eased community banks 'capital requirements by lowering the community banks' leverage ratio from 9% to 8% by 2021, and empowered Federal Deposit Insurance Corp. to revive its crisis program that withholds bank-issued and non-interest bearing debt from transactional deposits that exceed the FDIC limit of $ 250,000.
Troubled debt rescheduling was of particular concern to banks, as they assume that their customers may need lending easing long after the CARES Act has expired.
Critics of problematic rescheduling have argued that they reduce the incentive for banks to draw up new loan agreements with ailing borrowers as they require banks to raise more capital reserves and create other administrative problems. The American Bankers Association is calling for the problematic debt rescheduling exemption to remain in place through at least January 2023, while the Independent Community Bankers of America wrote in September asking Congress to extend the relief until the end of 2021.
"We have requested [an extension] … in large part because debt rescheduling will take place and we do not want regulators to retrospectively rate the institutions and their measures to support their customers in difficult times negatively." said James Ballentine, executive vice president of political affairs and congressional relations for the American Bankers Association.
Paul Merski, group executive vice president of Congressional Relations and Strategy for the Independent Community Bankers of America, said banks are concerned they will be penalized by their auditors for changing borrowers' credit terms after the relief expires.
“Borrowers with financial difficulties can extend the term of the loan. … Really, the regulators don't like that, "Merski said." This can negatively affect your exam, your bank, which offers this kind of relief. It's still better than canceling or closing out a borrower. "
Jeff Naimon, partner at Buckley, said bankers are likely to have limited ability to help borrowers if the problematic debt restructuring is not extended.
"The path the virus has taken is unpredictable, and it is possible that the economy could come back to life and then be knocked down again by another wave," Naimon said. "You can imagine that when the loan is already viewed as a TDR, borrowers who might get in trouble and out of trouble and institutions have less flexibility and fewer options."
The CARES Act also allowed borrowers on government-funded mortgages to apply for up to 12 months forbearance if they encountered financial difficulties due to COVID-19. Naimon said many banks could be in crisis trying to get leniency borrowers to make loan changes before the problematic debt restructuring relief expires.
"The bank wants the change to happen within the timeframe outlined in the guidelines, but it is also good for the consumer that their modified loan is not viewed as a TDR as it leaves options for them across the board," said Naimon
The bankers are also pushing for another deactivation of the CECL, which they condemned before the pandemic. Even some legislators have proposed that the standard be deleted altogether.
Listed banks had to start complying with the new accounting standard for credit losses in early 2020. However, the CARES law allowed them to postpone compliance until 2021. The community banks, on the other hand, had until 2023 to comply with the CECL. ICBA has suggested that the FASB could suspend the implementation of CECL until 2025, while ABA supports postponing the compliance date for larger banks until 2023.
Ryan Donovan, the chief advocacy officer for the Credit Union National Association, said financial institutions shouldn't worry about complying with a complex new accounting standard during a pandemic.
"We have had concerns for several years about the impact of a new standard for credit loss accounting on credit unions," said Donovan. "You add a global pandemic and economic crisis to the mix and you really have a recipe for disaster for lenders and borrowers alike. This is not the time to change how financial institutions, particularly community-based financial institutions, model or model expected credit loss forecast. "
Jill Castilla, the CEO of Citizens Bank of Edmond in Oklahoma, with assets of $ 317 million, said many small banks don't have the resources to devote to CECL because they are too busy with clients coming from affected by the pandemic.
"CECL requires significant investment and data collection. With a small community bank activated to serve our community at this challenging time, no attention was available in 2020 for this onerous and costly accounting change," said Jill Castilla, CEO of the $ 317 Citizens Bank of Edmond, Oklahoma. "The labor and costs associated with CECL are of no value to small banks."
Ballentine said ABA has endorsed a single CECL compliance date for all banks.
"Since the community institutions have until 2023, which we certainly support, we would argue that all institutions should extend this until 2023," Ballentine said. “One of the concerns we have always had about CECL is how you can explain this in the worst of times. It's easier to do this in the best of times when everything is clear. The future today is more bleak than ever. And that's one of the challenges in implementing CECL during this time. "
Christine Klimek, spokeswoman for the FASB, did not rule out that banks could further delay compliance with the CECL.
"The FASB continues to work with stakeholders as part of our post-implementation review process to monitor the impact of the pandemic on financial reporting and what action we should take, if any," Klimek said in an email to American Banker.
While support for expanding CARES Act aid is industry-wide, Donovan is concerned that Congress has not passed additional coronavirus aid laws.
"I think our biggest obstacle, frankly, is how Congress works right now," said Donovan. "Put this up or down in a vote, it would likely happen to both chambers. We won't get that vote. This is how the Congress works right now. "
However, lawmakers have been open to concerns from banks and credit unions.
Mike Crapo, chairman of the Senate Banking Committee, R-Idaho, wrote in July asking regulators to allow banks to postpone compliance with the CECL until January 1, 2023. He suggested that regulators extend the relief of problematic debt rescheduling until January 1, 2022.
At a virtual conference hosted by the National Association of Federally Insured Credit Unions, House Financial Services Committee Chair Maxine Waters, D-Calif. Said she understands financial institutions' concerns about facilitating restructuring expeditions.
"I understand the concerns the credit unions have expressed about problematic debt restructuring … and the need for Congress to consider expanded provisions of the CARES Act to help credit unions leniency their customers and meet their liquidity needs through 2021 while this crisis drags on. " Waters said Tuesday.