COVID-19 spurred 32 actions by Fed over two months, supervision/reg report shows

The Federal Reserve, in number, matched a year’s worth of regulatory actions over just two months’ time in its efforts to help banking institutions and their customers withstand the financial impacts of the coronavirus (COVID-19) pandemic, according to the Fed’s most recent Supervision and Regulatory Report, issued Friday.

The Fed report includes tables that show the Fed, alone or in concert with other banking regulators, issued 32 rulemaking actions or statements from March 9 to May 6 to help mitigate the effects of COVID-19. That’s one more than the total number of regulatory actions taken over the past 12 months that were unrelated to the virus. The round-up of COVID-related actions included the issuance of proposed and final rules, guidance, statements, supervisory and regulatory letters to system members, extensions of public comment periods and effective dates.

The report narrative highlights the following COVID-related actions:

  • Encouraging use of capital and liquidity buffers. The Federal Reserve and the other federal banking agencies issued a statement encouraging banking organizations to use their capital and liquidity buffers to serve households and businesses, and additional frequently asked questions to clarify the statement. The agencies also issued interim final rules to ensure automatic capital distribution restrictions phase in gradually, as intended.
  • Delaying the impact of the CECL accounting standard in capital rules. To ease operational burden, the Federal Reserve Board and the other federal banking agencies issued a CECL final rule to allow firms to mitigate the estimated impact of the CECL accounting methodology on capital for up to two years. Following the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Federal Reserve Board and the other federal banking agencies issued a joint statement to clarify the interaction between the CECL interim final rule and the CARES Act for purposes of regulatory capital requirements.
  • Temporarily adjusting supplementary leverage ratio requirements for holding companies. On a temporary basis, the Federal Reserve Board adopted an interim final rule to exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the supplementary leverage ratio requirement for holding companies to ease strains in the Treasury market resulting from the current crisis.
  • Encouraging firms to participate in Federal Reserve liquidity facilities. The federal banking agencies adopted an interim final rule to neutralize the regulatory capital effects of participating in the Money Market Mutual Fund Liquidity Facility (MMLF) and Paycheck Protection Program Liquidity Facility (PPPLF) to encourage participation in the facilities.
  • Allowing early adoption of counterparty credit risk measures in the capital rules. To improve market operations and smooth disruptions, the federal banking agencies allowed for early adoption by certain banking organizations of a new methodology for measuring counterparty credit risk in derivative contracts.
  • Temporarily reducing the community bank leverage ratio requirement. Consistent with the CARES Act, the banking agencies adopted two interim final rules to provide temporary relief to community banking organizations. The two rules modify the community bank leverage ratio framework so that: a banking organization with a leverage ratio of 8 percent or greater that meets certain other criteria may temporarily elect to use the community bank leverage ratio framework; and community banking organizations will have until Jan. 1, 2022, before the community bank leverage ratio is re-established at 9 percent.
  • Removing the six-transfer limit on savings deposits. To improve the access that consumers have to their funds and to simplify account administration for banks, the Board removed the six-per-month limit on convenient transfers from the “savings deposit” definition in Regulation D.

Plans for the 2020 supervisory stress test are noted in the report’s section on supervision. this year’s stress test was launched in February, with results currently due from regulators by June 30. The Fed reported that the current plan is to conduct the 2020 supervisory stress test as originally announced, maintaining  the established process under the Federal Reserve’s stress test and capital rules, and also conduct a series of sensitivity analyses using alternative scenarios and certain adjustments to portfolios “to credibly reflect current economic and banking conditions.”

The Fed’s supervision will be subject to lawmakers’ questions during a hearing next Tuesday by the Senate Banking Committee. The committee will remotely conduct an oversight hearing that will include testimony by Fed Board Vice Chair for Supervision Randal Quarles as well as Federal Deposit Insurance Corp. (FDIC) Chairman Jelena McWilliams, Comptroller of the Currency Joseph Otting, and National Credit Union Administration (NCUA) Chairman Rodney Hood.

Supervision and Regulation Report (May 2020)