Week ahead: 'No way to sugarcoat it,' things are about to get bad
Credit unions need to prepare for a rough week as the economic fallout from the coronavirus pandemic becomes more widespread.
There were over 35,000 U.S. COVID-19 cases in the United States as of mid-morning March 23, according to data compiled by Johns Hopkins University, which updates its estimates more frequently than the U.S. Centers for Disease Control. The U.S. Surgeon General suggested Monday morning that the number of diagnosed cases could grow substantially in the week ahead.
“[T]here’s really no way to sugarcoat it, this week is going to be one of the greatest economic disruptions since the Great Depression,” Mike Schenk, chief economist at the Credit Union National Association, said during a Monday press call.
Schenk forecasted the economy contracting “very severely” in the second quarter followed by much slower contractions during Q3 before slight growth as the year comes to a close. CUNA is forecasting a 12% annualized decline during Q2, contraction levels not seen since the Great Depression. And that's a modest forecast compared to other estimates. Goldman Sachs has doubled CUNA's forecast to a 24% contraction, while Morgan Stanley estimated upwards of 30%.
Government analysis pegs the total U.S. economy at roughly $21.73 trillion, and Schenk suggested as much as 20% of total economic activity could be at risk moving forward.
That grim forecast arrives as Congress continues to scramble to piece together coronavirus relief measures. Senate Republicans last week rolled out an economic stimulus package that would provide roughly $1 trillion in aid to U.S. businesses and citizens. Senate Democrats blocked that legislation Sunday evening, but deliberations continue and a vote is expected sometime on March 23.
In the meantime, the National Association of Federally-Insured Credit Unions has called on the Senate to ensure relief legislation provides parity for banks and credit unions. NAFCU President and CEO Dan Berger, in a letter to Senate leadership, noted that banks are covered under the paycheck protection program unlike credit unions since CUs are not defined as financial institutions in the legislation’s language.
With economic fears growing, groups from across the financial services industry have called on Congress to delay the current expected credit loss standard, while credit union groups like the NAFCU have requested lawmakers raise the 15-year maturity limit on certain CU loans and modernize provisions of the Federal Credit Union Act, among other actions.
Meanwhile, regulators have rushed to roll out additional relief. The Federal Reserve extended $300 billion in new financing for credit facilities along with purchasing an unlimited amount of Treasury bills and mortgage-backed securities. This coincides with efforts from independent regulators, including the National Credit Union Administration, who issued further guidance for financial institutions to work with borrowers. Such guidance includes directing institutions not to automatically categorize loan modifications as troubled debt restructurings. Regulators reminded institutions that not every loan modification results in a TDR, such as short-term modifications made in response to COVID-19 to borrowers in good standing.
"The coronavirus pandemic is causing tremendous hardship across the United States and around the world," the Fed said in a statement, continuing that though great uncertainty remains, “it has become clear that our economy will face severe disruptions.”