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PH FedACTion: Financial Regulatory Updates

Daily Financial Regulation Update - Thursday, May 7, 2020

May 07, 2020

By FedACTion Task Force

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Major Developments

Treasury and SBA Update Paycheck Protection Program FAQs

May 5, 2020

The U.S. Department of the Treasury and the Small Business Administration (SBA) updated their Frequently Asked Questions (FAQs) for the Paycheck Protection Program (PPP) to announce that the SBA is extending its loan repayment date safe harbor, rather than initial deadline set forth in FAQ 31 for borrowers who applied for a PPP loan prior to April 24, 2020, to permit borrowers to evaluate soon to-be-issued guidance addressing how the SBA will review borrower certifications pertaining to the economic uncertainty facing the ongoing operations of the borrower (FAQ 43).

The FAQs also clarify that:

(i) for purposes of the PPP’s 500 or fewer employee size standard, an applicant must count all of its U.S. and foreign employees and the employees of its U.S. and foreign affiliates, absent a waiver of or an exception to the affiliation rules (FAQ 44); and

(ii) an employer that repays its PPP loan by the safe harbor deadline (May 14, 2020) is eligible for the Employee Retention Tax Credit under the CARES Act, as long as the employer is otherwise an eligible employer for purposes of the credit (FAQ 45).

SBA Issues Interim Final Rule on Nondiscrimination and Additional Eligibility Criteria for the Paycheck Protection Program

May 5, 2020

The Small Business Administration issued an Interim Final Rule that supplements the previously issued Interim Final Rules by providing guidance addressing nondiscrimination by lenders and clarifying the treatment of student-workers in determining the number of employees for Paycheck Protection Program (PPP) eligibility. The Interim Final Rule clarifies that:

(i) recipients of PPP loans are entitled to exemptions on the grounds provided in federal nondiscrimination laws for sex-specific admissions practices, sex-specific domestic violence shelters, coreligionist housing, and Indian tribal preferences in connection with adoption or foster care practices; and

(ii) student workers generally count when determining the number of employees for PPP loan eligibility, unless

(a) the applicant is an institution of higher education, as defined in the Department of Education’s Federal Work-Study regulations, and

(b) the student worker’s services are performed as part of a Federal Work-Study Program (as defined in those regulations) or a substantially similar program of a state or political subdivision of such state.

  • Interim Final Rule


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

to view the full text of the Paycheck Protection Program Increase Act of 2020, Enacted April 24, 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.

Federal Agencies

Department of the Treasury

Quarterly Refunding Statement of Deputy Assistant Secretary for Federal Finance Brian Smith

May 6, 2020

The U.S. Department of the Treasury (Treasury) is offering $96 billion of Treasury securities to refund approximately $57 billion of privately-held Treasury notes and bonds maturing on May 15, 2020.  This issuance will raise new cash of approximately $39 billion.  The securities are: (i) a three-year note in the amount of $42 billion, maturing May 15, 2023; (ii) a 10-year note in the amount of $32 billion, maturing May 15, 2030; and (iii) a 30-year bond in the amount of $22 billion, maturing May 15, 2050. The balance of Treasury’s financing requirements over the quarter will be met with the weekly bill auctions, cash management bills, and the monthly note, bond, Treasury Inflation-Protected Securities auctions, and the two-year Floating Rate Note auctions. Treasury’s borrowing needs have increased substantially as a result of the federal government’s response to the COVID-19 pandemic.

Federal Reserve Board

Agencies Extend Two Resolution Plan Deadlines

May 6, 2020

The Federal Deposit Insurance Corporation and the Federal Reserve Board announced two extensions to upcoming resolution plan deadlines, in light of the challenges arising from the COVID-19 response. First, the agencies extended the submission date by 90 days, to September 29, 2020, for the resolution plans from four specific foreign banks. The plans are required to remediate certain weaknesses previously identified by the agencies. The agencies also extended the submission date by 90 days, to September 29, 2021, for the targeted resolution plans from the large foreign and domestic banks in Categories II and III of the agencies’ large bank regulatory framework.

Flood Insurance Compliance in Response to the Coronavirus

May 6, 2020

On March 9, the Federal Reserve Board and the other federal financial institution regulatory agencies and state bank regulators issued a statement to encourage financial institutions to meet the financial services needs of their customers and members in areas affected by COVID-19. Since that time, the Federal Reserve Board has received questions from state member banks regarding flood insurance compliance requirements during the COVID-19 pandemic. The letter issued by the Federal Reserve Board provides information on: (i) whether a bank would be required to make a new flood zone determination and provide new notices of special flood hazards, if a bank works with its borrowers by extending maturities/payments or balloon payments due to the COVID-19 pandemic; and (ii) how Federal Emergency Management Agency Bulletin W-200002 affects the force placement requirement under the Flood Disaster Protection Act and the implementing regulation.

Federal Reserve Bank of New York

Statement Regarding Treatment of 20-year Nominal Coupon Bond in SOMA Operations

May 6, 2020

The U.S. Treasury has announced that it intends to begin issuing a 20-year nominal coupon bond (20-year bond), with the first auction occurring on May 20, 2020.  Consistent with past practices, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York is prepared to include the 20-year bond in System Open Market Account (SOMA) operations and treat it in a similar manner to other nominal coupon Treasury securities, effective immediately.  These SOMA operations include the Desk’s rollovers of maturing Treasury security holdings at auction, purchases of Treasury securities, securities lending program, repurchase agreements, and reverse repurchase agreements.

Where Have the Paycheck Protection Loans Gone So Far?

May 6, 2020

The Federal Reserve Bank of New York issued an article analyzing the allocation of credit in the first round of the Paycheck Protection Program (PPP) loans. The article concludes by noting that the economic impact of COVID-19, both measured by the number of COVID-19 cases per capita and by the number of initial unemployment claims per capita, does not explain the geographical distribution of PPP loans. The articles notes that, in contrast, it appears that lenders’ preference for borrowers with an existing relationship and the market share of community banks are the main factors explaining the geographical variation in PPP funding. The results are preliminary and subject to caveats. Causal analysis is left to ongoing and future work.

Consumer Financial Protection Bureau

Consumer Financial Protection Bureau Issues Equal Credit Opportunity Act Clarifications to Support Small Business Applying for PPP Loans

May 6, 2020

The Consumer Financial Protection Bureau (CFPB) issued clarifying its Equal Credit Opportunity / Regulation B Frequently Asked Questions (FAQs) addressing small businesses that have applied for a loan from their financial institution under the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The CFPB clarifies in the FAQs that a PPP application is only a “completed application” once the creditor has received a loan number from the SBA or a response about the availability of funds. Such guidance ensures that the time awaiting this information from the SBA does not count towards the 30-day notice requirement, where creditors are required to notify applicants within 30 days of receiving a completed application of the creditor’s approval, counteroffer, denial or other adverse notice regarding the application.


European Commission

Spring 2020 Economic Forecast: A Deep and Uneven recession and an Uncertain Recovery

May 6, 2020

The European Commission released its Spring 2020 Economic Forecast. The Forecast notes that the COVID-19 pandemic represents a major shock for the global and EU economies, with very severe socio-economic consequences. Despite the policy response at both the EU and national level, the EU economy will experience a recession of historic proportions this year. The Forecast projects that the euro area economy will contract by 7¾% in 2020 and grow by 6¼% in 2021. The EU economy is forecast to contract by 7½% in 2020 and grow by around 6% in 2021. Growth projections for the EU and euro area have been revised down by around nine percentage points compared to the Autumn 2019 Economic Forecast.

UK Financial Conduct Authority

Period to Cover Absent Senior Managers Extended Due to COVID-19

May 6, 2020

The Financial Conduct Authority (FCA) has extended the maximum period firms can arrange cover for a Senior Manager without being approved, from 12 weeks to 36 weeks, in a consecutive 12-month period. The modification by consent to rule SUP10.3.13R is available to all solo regulated firms. It also allows firms to allocate an absent Senior Manager’s prescribed responsibilities to the individual covering the role (a modification of SYSC 24.1.2). The modification by consent aims to provide flexibility to firms managing their governance arrangements during the COVID-19 pandemic. It will take effect from the date the firm applies for it, and will end on April 30, 2021.

FCA’s National and International Response to COVID-19 and Brexit

May 6, 2020

Nausicaa Delfas, Executive Director of International, at the Financial Conduct Authority (FCA) delivered a speech at the Deloitte Annual Conduct Risk Conference. Her speech highlighted that in response to the pandemic, the FCA has been working with partners nationally and internationally to keep markets open and orderly, help firms continue to operate, protect consumers and small businesses, and maintain high standards of conduct. She noted that it will be important to leverage off the experience of working through the pandemic for the post-crisis recovery. The FCA continues to prepare for the end of the Brexit transition period. The FCA, working with the Treasury and Bank of England, is preparing for a range of scenarios in order to ensure a smooth transition. Firms should continue to consider what actions they need to take to be ready for the end of the transition period, and what this will mean for their customers.

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