Regulators issue more guidance on banks' pandemic response

By Brendan Pedersen and Neil Haggerty

WASHINGTON — Federal banking regulators took a series of steps Thursday to further guide banks in supporting customers, small businesses and communities in the midst of the coronavirus outbreak.

The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency expanded activities eligible for Community Reinvestment Act credit to include actions that support communities affected by the pandemic. The agencies also clarified earlier guidance encouraging banks to use their capital and liquidity buffers for lending efforts.

The joint statement on CRA built on guidance last week, when the FDIC and OCC advised banks that examiners would not penalize institutions for allowing loan flexibility or taking other measures to help their customers.

Now, the host of actions banks are encouraged to take in order to help customers — including waived fees, loan deferment and “alternative servicing” in light of bank branch closures — will be eligible for CRA credit. That guidance is consistent with past action in response to natural disasters and other crises, such as the destruction in Puerto Rico after Hurricane Maria.

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The agencies’ announcement on Thursday said they would consider CRA credit for additional community development activities as well, including loans, investments and services that support digital access, health care, small-business expenses and even food for low-to-moderate income communities.

According to the regulators, the expansion of CRA-eligible activities will be in effect through the six-month period after the U.S. lifts the national emergency declaration.

The actions announced Thursday were among a flurry of moves from the regulatory agencies to help banks and their customers cope with the financial fallout from the pandemic. The FDIC also separately issued two "frequently asked questions documents — one for banks and another for consumers — to "address a variety of issues that may arise as financial institutions work with customers and communities affected by COVID-19."

In addition to guidance on CRA credit, the three bank regulators also provided additional details to banks Thursday on the appropriate use of capital and liquidity buffers in lending.

Earlier this week, regulators issued a joint statement encouraging banks to use their capital and liquidity buffers to lend amid the burgeoning national emergency.

The regulators clarified that “liquidity buffer” refers to liquid assets used to meet expected and unexpected cash flows and collateral needs without adversely affecting daily operations.

The regulators also clarified that while they are encouraging banks to dip into their capital buffers to lend to consumers affected by the coronavirus, they have not changed the levels or distribution restrictions associated with them. But they did increase the amount of retained income available for distribution on Tuesday, so that banks won’t face “abrupt regulatory restrictions” when dipping into capital buffers.

The agencies also said that banks can use their total loss-absorbing capacity buffers to lend and “undertake other supportive actions in a safe and sound manner.”