Regulators grant relief to banks pushed past key asset limits by PPP

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Federal regulators have granted relief to community banks that have ballooned in size during the coronavirus pandemic and were bumping up against any of several asset thresholds that trigger stricter supervisory requirements, according to an interim rule issued Friday.

Balance sheets at some banks have grown by more than 25% during the pandemic as businesses turned to their local banks for Paycheck Protection Program and other emergency loans while local economies were shuttered to prevent the spread of the disease, the Federal Deposit Insurance Corp., Federal Reserve and the Office of the Comptroller of the Currency said.

Under the agencies’ joint rulemaking, certain supervisory requirements involving debit interchange, capital, financial reporting and other matters generally will be based on a community bank’s asset size at Dec. 31, 2019. In some cases, the asset size from a later date can be used if it’s lower than the year-end 2019 figure.

The rule defines community banks as those with assets of $10 billion or less. However, the relief — which will extend through the end of 2021 — applies to a series of regulatory requirements that kick in at various stages of a bank’s growth, including when assets reach $100 million, $500 million, $3 billion, $5 billion and $10 billion.

Nine banks expanded beyond $10 billion of assets between the end of last year and the second quarter of 2020, an FDIC spokesman said late Friday. Banks above the threshold face pricing limits on debit interchange fees and other new regulatory requirements.

Importantly, the rule does not relieve banks from supervision by the Consumer Financial Protection Bureau, which is also triggered at the $10 billion-asset mark. And the rule change does not apply to the Volcker Rule limits on proprietary trading, because banks already get a two-year grace period to come into compliance with the regulation and could shrink back in size before then, the agencies noted in their rule Friday.

It was not immediately clear how many banks have already crossed the other key thresholds covered by the rule, or how many were in danger of surpassing any of them soon.

One of the biggest contributors has been the PPP. Banks with less than $10 billion originated more than 2.7 million PPP loans, worth about $233.7 billion, since the program launched in April, according to the agencies. These smaller lenders have accounted for more than half of all PPP loans.

The Independent Community Bankers of America had been pushing lawmakers to grant relief for banks crossing important thresholds, especially the $10 billion mark.

Banking agencies typically propose rule changes and leave time for a comment period before making major changes. But the regulators accelerated the process to relieve some community banks from higher costs in anticipation of having to comply with new rules starting next year, the agencies said in their final rule Friday.

The agencies said in the rulemaking documents that the costs could have been “significant.”

“Given the rapid and unexpected nature of community banking organization asset growth in 2020, many community banking organizations are unlikely to have planned for these transition costs,” the agencies said.

The interim rule will be effective immediately upon its upcoming publication in the Federal Register.

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Regulatory relief Paycheck Protection Program Federal Reserve OCC FDIC
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