In congressional report, Fed outlines its actions to blunt financial impact of coronavirus crisis in four categories

Regulatory and supervisory actions taken in the face of the coronavirus (COVID-19) crisis by the Federal Reserve are broken up into four categories in a report issued Friday, summarizing the agency’s actions to “facilitate market functioning and reduce regulatory impediments to banks supporting households, businesses, and municipal customers.”

The Fed’s Monetary Policy Report was issued in advance of testimony next week by Chair Jerome H. (“Jay”) Powell before Senate and House committees. Powell will be making his semiannual monetary policy report to Congress, June 16 before the Senate Banking Committee and June 17 before the House Financial Services Committee.

Among other things In the report (which mostly focuses on Fed actions during the COVID-19 pandemic in pursuit of its dual mandate of full employment and stable prices), the Fed stated that the regulatory and supervisory actions it has taken to deal with the financial impact of the pandemic fall into four categories:

  • acceleration of previously planned, permanent adjustments to certain regulatory requirements to address specific impediments to market functioning;
  • provision of additional time for banking organizations to phase in new regulatory requirements;
  • temporary relaxation of certain regulatory requirements or requirements imposing supervisory burden;
  • supervisory statements encouraging banks to support those affected by COVID-19.

According to the Fed, the first category includes such efforts as changing the definition of eligible retained income to ensure capital and total loss-absorbing capacity buffers function as intended; allowing early adoption of a new method for certain banking organizations to measure counterparty credit risk derivatives contracts; reducing reserve requirement ratios to zero; and amending Regulation D (Reserve Requirements of Depository Institutions) to delete the six-per-month limit on convenience transfers from the “savings deposit” definition.

The second category includes allowing certain banks and banking firms to delay effects of the new current expected credit losses (CECL) accounting standard; and extending the initial compliance with the single-counterparty credit limit rule by 18 months.

Under the third category, the report lists such efforts as excluding Treasury securities and reserves from the supplementary leverage ratio denominator; modifying liquidity and capital rules to allow banking organizations to neutralize the regulatory effects of participating in the Paycheck Protection Program Lending Facility (PPPLF) and Money Market Mutual Fund Lending Facility (MMLF) programs; a change to support the favorable treatment of term primary credit loans from the discount window under the liquidity rules; providing temporary waivers to banks for limits on transactions with nonbank affiliates that offer credit and intermediation; temporarily lowering the community bank leverage ratio to 8%; giving banks flexibility in the timing of regulatory reports; and granting mortgage servicers flexibility to work with struggling consumers affected by COVID-19.

The fourth category includes such efforts, the Fed said, as encouraging banks to use capital and liquidity buffers to work constructively with borrowers and to make short-term loan modifications on a good-faith basis, as well as encouraging lenders to offer responsible small-dollar loans to consumers and small businesses and to support low- and moderate-income borrowers through loans and banking fee waivers.

Federal Reserve Monetary Policy Report, June 12