Coronavirus stimulus package: What do credit unions need to know?

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WASHINGTON — Lawmakers moved closer to advancing a massive $2 trillion stimulus bill Wednesday that would give banks and credit unions a number of tools to increase their lending capacity and offer consumers some relief as they weather the coronavirus pandemic.

Senate leaders from both parties and the Trump administration agreed early Wednesday morning on a deal that would amount to the biggest aid package for businesses since the 2008 bank bailout, allow for the revival of a financial crisis-era guarantee of bank liabilities and include key regulatory relief measures sought by financial firms, including several provisions pushed for by credit union groups

Yet details of the final legislative text were still unclear as late as Wednesday afternoon. Whether the House would accept the Senate plan was still uncertain as members appeared still to be discussing last-minute changes. House Speaker Nancy Pelosi, D-Calif., said in a statement early Wednesday that her chamber still needed to review the details "to determine a course of action.”

The unprecedented deal includes direct payments to households of $1,200 per adult and $500 per child, and $500 billion for a Treasury Department stabilization fund to aid economic sectors and states hit hard by the virus outbreak.

"This is not a moment of celebration but rather one of necessity," said Sen. Chuck Schumer, D-N.Y., the Senate minority leader, in a late-night memo to other Democrats. "All of us had to come together to agree on bipartisan legislation to send an infusion of desperately needed resources to our public health systems, state, local, and tribal governments, small businesses, and American workers."

The bill would also authorize the Federal Deposit Insurance Corp. to revive its crisis-era program backstopping bank-issued debt and noninterest-bearing transaction deposits that exceed the FDIC and National Credit Union Administration's $250,000 limit. The separate reg relief measures in the bill would include NCUA in an optional temporary delay to the start of the Current Expected Credit Losses standard, as well as a temporary reprieve from capital requirements related to certain loan modifications. It woudl also expand NCUA's Central Liquidity Facility, which helps provide additional liquidity for CUs falling short in that area.

Policymakers agreed early Wednesday morning on a roughly $2 trillion package as Congress prepares to vote on the biggest aid package for businesses since the 2008 bank bailout in the midst of the financial crisis.
Policymakers agreed early Wednesday morning on a roughly $2 trillion package as Congress prepares to vote on the biggest aid package for businesses since the 2008 bank bailout in the midst of the financial crisis.

In 2008, the FDIC used authority independent of Congress to launch the Debt Guarantee Program and Transaction Account Guarantee Program, two temporary steps to back bank liquidity that was at risk in the financial crisis. The Dodd-Frank Act in 2010 had required the agency to seek congressional approval if it ever needed to resurrect the programs in the future. The Senate deal unveiled Wednesday would provide that approval.

Some were comparing the package's mammoth amount of aid to businesses and states, in the form of loans and other assistance, to the 2008 legislative program known as the Troubled Asset Relief Program. TARP, as it became to be known, made $700 billion of new capital infusions available to banks and other companies hit by the 2008 meltdown.

The $500 billion in new assistance through the Treasury fund would include $29 billion for airline carriers, $17 billion for businesses related to national security, and $454 billion in loans and other types of assistance to Federal Reserve credit facilities meant to aid eligible businesses, states and municipalities.

“Small and large businesses are losing access to liquidity, putting them at serious risk of closing down permanently and displacing millions of workers,” said Senate Banking Committee Chairman Mike Crapo, R-Idaho. “If businesses go insolvent today, then the economy and the finances of U.S. citizens will suffer long after the coronavirus is contained.

The bill would also give banks and credit unions an optional reprieve from a controversial new accounting standard for loan losses promulgated by the Financial Accounting Standards Board. Banks that were originally set to comply this quarter with the Current Expected Credit Losses, or CECL, standard could opt to wait until Dec. 31, or the day when the national emergency declaration ends.

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Lenders could also get relief from categorizing loan modifications related to the pandemic as troubled debt restructurings. The TDR designation reduces the incentive for banks and CUs to work out loans for struggling borrowers, since it requires Fis to set aside more in capital reserves and creates other administrative problems. The accounting relief for loan workouts would be retroactive to March 1 and last 60 days after the declaration is lifted.

The bill would also help community banks provide resources to meet their customers' financial needs, by lowering the community bank leverage ratio from 9% to 8% until the public health emergency is terminated of Dec. 31, whichever comes first.

Nonbank financial firms could also get a temporary waiver from lending limits imposed by the Office of the Comptroller of the Currency. The comptroller is temporarily authorized to exempt any transaction from the limits if it is in the public interest. The exemption lasts until Dec. 31 or when the declaration is lifted.

The legislation also includes a provision to protect consumers’ credit reports if they need to make loan modifications related to the coronavirus.

Financial institutions must report modified loan payments as “current” to credit reporting agencies, as long as the customer is fulfilling requirements pursuant to any modifications, for 120 days after the emergency declaration is lifted.

The legislation also provides for up to 180 days of forbearance for borrowers of federally-backed mortgage loans. For a 60-day period beginning March 18, foreclosures on federally-backed mortgage loans are prohibited.

For multifamily borrowers, the legislation provides up to 90 days of forbearance. But borrowers receiving forbearance may not evict or charge late fees to tenants during the time period.

The bill would create congressional oversight committee to oversee Treasury and the Fed's implementation of the stabilization funds. Pelosi, Senate Majority Leader Mitch McConnell, R-Ky., Schumer, and House Majority Leader Kevin McCarthy, R-Calif., would each get to appoint one person to serve on the five-member panel. A fifth member would be agreed to by Pelosi and McConnell. The panel would submit reports to Congress every 30 days until Sept. 30, 2025.

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Regulatory relief Coronavirus Deposit insurance Debt Steven Mnuchin House Financial Services Committee Senate Banking Committee CECL FDIC