(Adds announcement of additional CRA credit and FDIC letter to FASB)
By Pete Schroeder
WASHINGTON, March 19 (Reuters) – U.S. banking regulators said Thursday they would give banks extra credit for lending to lower-income Americans affected by the coronavirus epidemic as part of their fair lending score.
The regulators also responded to questions from banks about how to utilize their liquidity and capital buffers during market stress, as part of an ongoing effort to encourage them to use some of those reserves to keep lending.
The Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency said in a joint statement that they would look favorably on any banks that extended services to poorer Americans affected by coronavirus when setting a bank’s Community Reinvestment Act (CRA) score, confirming a Reuters report on Wednesday.
That 1977 fair lending law rates banks on, among other measures, how effectively they meet the credit needs of poorer communities.
Also on Thursday, FDIC Chairman Jelena McWilliams called on a global accounting board to allow banks to postpone adhering to a new accounting methodology that requires banks to estimate potential future losses on loans.
In a letter sent to the Financial Accounting Standards Board, she argued relief from the new standard would allow banks to focus on lending during a very uncertain time.
The responses from regulators posted Thursday show that they have been fielding questions from banks about how to properly dip into buffers, what impact it could have on other rules they must follow and new emergency tools offered by the government.
After significantly rebuilding their capital and liquidity reserves following the 2007-2009 financial crisis, regulators are now urging banks to use them.
“These capital and liquidity buffers were designed to provide banking organizations with the means to support the economy in adverse situations and allow banking organization to continue to serve households and businesses,” they said.
The questions are generally broad, fleshing out in detail what happens to banks that drop below minimum buffer levels.
For capital, banks face increasing restrictions on automatic capital distributions like dividends to shareholders and executive bonuses. And for liquidity, they are required to submit a plan to their supervisor detailing how they intend to restore the buffer in time.
The regulators said the largest banks currently have $1.3 trillion in common equity, and another $2.9 trillion in high-quality liquid assets. (Reporting by Pete Schroeder; Editing by Andrea Ricci and Alexander Smith)
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