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Daily Financial Regulation Update - Thursday, April 9, 2020

April 10, 2020

By FedACTion Task Force

Major Developments

PH Client Alerts

COVID-19: Overview of the Credit Facilities Implemented by the Federal Reserve to Provide up to $2.3 Trillion

April 9, 2020

The Board of Governors of the Federal Reserve System (Federal Reserve) is implementing several credit facilities to provide up to $2.3 trillion in loans relying upon its Section 13(3) emergency lending powers under the Federal Reserve Act. These new facilities are in addition to the re-establishment of certain credit facilities from the 2008 financial crisis and other initiatives implemented since the onset of the COVID-19 global pandemic.

The Federal Reserve’s actions, approved by the U.S. Department of the Treasury (Treasury) under Section 13(3) of the Federal Reserve Act, established three new emergency lending facilities:

  • the Main Street Lending Program, including two facilities to purchase loans made under the Main Street Lending Program (collectively, the Main Street Program);

  • the Paycheck Protection Program Lending Facility; and

  • the Municipal Liquidity Facility.

Moreover, the Federal Reserve significantly expanded the size and/or scope of three existing emergency lending facilities previously announced on March 23, 2020:

  • the Primary Market Corporate Credit Facility (PMCCF);

  • the Secondary Market Corporate Credit Facility (SMCCF); and

  • the Term Asset-Backed Securities Loan Facility (TALF).

The details of the facilities are summarized in Annex A linked below. Paul Hastings is actively counselling clients on these emergency lending programs and other stimulus programs adopted to date by the Federal Reserve, Treasury and the federal banking agencies. This information remains fluid and subject to change. Stay tuned for updates as these emergency lending programs and other stimulus programs are finalized and implemented.

to read more from our Coronavirus series.

COVID-19: Federal bank regulators issue interim final rule addressing Capital Implications of Paycheck Protection Program Facility

April 9, 2020

The Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency announced an interim final rule to encourage lending to small businesses through the Small Business Administration's Paycheck Protection Program (PPP). The interim final rule modifies the agencies' capital rules to neutralize the regulatory capital effects of participating in the Federal Reserve's PPP facility because there is no credit or market risk in association with PPP loans pledged to the facility. Consistent with the agencies' current capital rules and the CARES Act requirements, the interim final rule also clarifies that a zero percent risk weight applies to loans covered by the PPP for capital purposes.

Congress

to view the full text of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), 116 HR. 748, Enacted March 27, 2020.

from the Senate Committee on Banking, Housing and Urban Affairs, Senate Committee on Small Business and Entrepreneurship, House Committee on Financial Services, and House Committee on Small Business.

U.S. Senate

Committee on Banking, Housing, and Urban Affairs

COVID-19: Crapo Encourages Agencies, Regulators to Help Lenders and Borrowers During COVID-19 Crisis

April 8, 2020

U.S. Senator Mike Crapo (R-Idaho), Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, issued an update on the Paycheck Protection Program (PPP). Crapo has been working closely with the U.S. Department of the Treasury and the Small Business Administration, urging them to provide additional clarity to banks, credit unions and non-bank lenders so that these institutions can provide loans to small businesses more quickly and efficiently. Crapo also sent a letter to the banking regulators, encouraging them to look for more ways to help strengthen the PPP, fix regulations to promote lending, and provide the Banking Committee with statutory changes and recommendations necessary to stabilize markets and expand lending during the COVID-19 crisis.

COVID-19: Crapo Commends SEC for COVID-19 Response, Requests Information on Additional Actions

April 8, 2020

U.S. Senator Mike Crapo (R-Idaho), Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, sent a letter to Securities and Exchange Commission (SEC) Chairman Jay Clayton applauding the agency for its quick, decisive actions in response to the COVID-19 crisis. Crapo also requested input on additional steps or statutory changes the SEC needs in order to mitigate the economic impact of COVID-19.

Federal Agencies

Department of Treasury

COVID-19: Treasury and IRS Extend Over 300 Tax Filing, Payment and Administrative Deadlines

April 9, 2020

The U.S. Department of the Treasury and the Internal Revenue Service announced they are extending the deadline for many administrative acts under the federal tax laws as well as the tax filing and payment deadlines for fiscal year businesses, tax-exempt organizations and certain estates and trusts.

Federal Deposit Insurance Corporation

COVID-19: Revisions to the Consolidated Reports of Condition and Income (Call Report) and the FFIEC 101 Report

April 9, 2020

In March 2020, in response to the impact on the financial markets by COVID-19, the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency issued, and published in the Federal Register, three interim final rules and a notice that impact the reporting of regulatory capital in the Call Report. These revisions impact the instructions for calculation of certain amounts reported on Schedule RC-R, Regulatory Capital, and apply to the three versions of the Call Report (FFIEC 031, FFIEC 041, and FFIEC 051) and the Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC 101).

Securities and Exchange Commission

COVID-19: SEC Provides Temporary, Conditional Relief for Business Development Companies Making Investments in Small and Medium-sized Businesses

April 8, 2020

The Securities and Exchange Commission announced that it is providing temporary, conditional exemptive relief for business development companies (BDCs) to enable them to make additional investments in small and medium-sized businesses, including those with operations affected by COVID-19. BDCs were created to provide capital to smaller domestic operating companies that otherwise may not be able to readily access the capital markets. The relief will provide additional flexibility for BDCs to issue and sell senior securities in order to provide capital to such companies, and to participate in investments in these companies alongside certain private funds that are affiliated with the BDC. The relief is subject to investor protection conditions, including specific requirements for obtaining an independent evaluation of the issuances’ terms and approval by a majority of a BDC’s independent board members.

COVID-19: Rulemaking in the Time of COVID-19

April 8, 2020

Securities and Exchange Commission Commissioner Elad L. Roisman issues statement on the importance of continuing regulatory rulemaking during the COVID-19 crisis.

COVID-19: The Importance of Disclosure – For Investors, Markets and Our Fight Against COVID-19

April 8, 2020

Securities and Exchange Commission (SEC) Chairman Jay Clayton and Division of Corporation Finance Director William Hinman issue statement on the need for companies to provide as much information as possible regarding their current financial and operating status, as well as their future operational and financial planning in order to provide the public with the information necessary to make informed investment decisions. They note that the SEC’s three part mission—maintain market integrity, facilitate capital formation and protect investors—takes on particular importance in times of economic uncertainty. The statement includes a series of observations and requests for detailed disclosure.

Department of Labor

COVID-19: Unemployment Insurance Weekly Claims – COVID-19 Impact

April 9, 2020

In the week ending on April 4, the advance figure for seasonally adjusted initial claims was 6,606,000, a decrease of 261,000 from the previous week's revised level. The previous week's level was revised up by 219,000, from 6,648,000 to 6,867,000. The 4-week moving average was 4,265,500, an increase of 1,598,750 from the previous week's revised average. The previous week's average was revised up by 54,750, from 2,612,000 to 2,666,750.

Department of Education

COVID-19: Department of Education Delivers More Than $6 Billion in Emergency Cash Grants for College Students Impacted by Coronavirus Outbreak

April 9, 2020

The U.S. Department of Education announced that more than $6 billion will be distributed immediately to colleges and universities to provide direct emergency cash grants to college students whose lives and educations have been disrupted by the coronavirus outbreak. The funding is available through the Higher Education Emergency Relief Fund authorized by the CARES Act, which provides nearly $14 billion to support postsecondary education students and institutions. Colleges and universities are required to utilize the $6.28 billion made available to provide cash grants to students for expenses related to disruptions to their educations due to the COVID-19 pandemic, including things like course materials and technology as well as food, housing, health care, and childcare.

International

European Commission

COVID-19: Coronavirus: Commission Statement on consulting Member States on proposal to further expand State aid Temporary Framework to recapitalisation measures

April 9, 2020

The European Commission sent to Member States for consultation a draft proposal to further extend the scope of the State aid Temporary Framework adopted on March 19, 2020 to support the economy in the context of the coronavirus outbreak. The Temporary Framework was first amended on April 3, 2020, which increased possibilities for public support to research, testing and production of products relevant to fight the coronavirus outbreak, to protect jobs and to further support the economy.

Bank of England

COVID-19: HM Treasury and Bank of England announce temporary extension to Ways and Means facility to support the orderly functioning of markets through the COVID-19 disruption

April 9, 2020

HM Treasury and the Bank of England have agreed to extend temporarily the use of the government’s long-established Ways and Means (W&M) facility. As a temporary measure, this will provide a short-term source of additional liquidity to the government if needed to smooth its cashflows and support the orderly functioning of markets, through the period of disruption from COVID-19. The government will continue to use the markets as its primary source of financing, and its response to COVID-19 will be fully funded by additional borrowing through normal debt management operations. Any use of the W&M facility will be temporary and short-term. As well as temporarily smoothing government cash flows, the W&M facility supports market function by minimising the immediate impact of raising additional funding in gilt and sterling money markets.

COVID-19: Financial Policy Committee statement related to the outbreak and spread of COVID-19

April 9, 2020

The Financial Policy Committee (FPC) met to review developments in the financial system related to the outbreak and spread of COVID-19. The FPC noted that, given the severity of the disruption associated with COVID-19, economic activity was reducing very sharply. Consistent with the sharp deterioration in the economic outlook, there have been very significant falls in a range of financial asset prices. The FPC usually assesses risks to UK financial stability and the resilience of the UK financial system, and publishes that assessment in biannual Financial Stability Reports. Given the material developments in recent weeks, the FPC decided to supplement its normal practice with an additional interim Financial Stability Report. That interim Report will be published on May 7, alongside the May Monetary Policy Report issued by the Monetary Policy Committee.

Bank of England Prudential Regulation Authority

COVID-19: PRA decision on Systemic Risk Buffer rates in response to the economic shock from COVID-19

April 9, 2020

The Prudential Regulation Authority (PRA), with support from the Financial Policy Committee, announced its decision to maintain firms Systemic Risk Buffer rates at the rate set in December 2019, in response to the economic shock from COVID-19. These rates will be reassessed in December 2021. Separately, but also in response to the COVID-19 pandemic, the PRA published a Modification by consent of the calculation of the total exposure measure of the Leverage Ratio.

Prudential Regulation Authority Release Business Plan 2020/21, Which Includes Some of its Highest-Level Actions to Mitigate the Impact of COVID-19

April 9, 2020

The 2020/21 Business Plan of the Prudential Regulation Authority (PRA) sets out the work plan for each of its strategic goals to support the delivery of the PRA’s strategy, together with an overview of the PRA’s budget for the period March 1, 2020 through February 28, 2021. It also details some of the PRA’s highest-level actions to mitigate the impact of COVID-19 on the firms it regulates, and on the UK economy.

UK Financial Conduct Authority

COVID-19: FCA confirms temporary financial relief for customers impacted by coronavirus

April 9, 2020

The Financial Conduct Authority (FCA) has confirmed a package of targeted temporary measures to help people with some of the most commonly used consumer credit products. The FCA will be going ahead with the proposals outlined last week, which will give firms the flexibility under its rules to provide temporary financial relief to those facing payment difficulties during the COVID-19 pandemic. The measures include firms being expected to: (i) offer a temporary payment freeze on loans and credit cards for up to three months, for consumers negatively impacted by coronavirus; (ii) allow customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account, up to £500 charged at zero interest for three months; (iii) make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft pricing changes came into force; and (iv) ensure consumers using any of these temporary payment freeze measures will not have their credit file affected.