Our take: financial services regulatory update - June 19, 2020

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Change remains a constant in financial services regulation. Read "our take" on the latest developments and what they mean.

Current topics - June 19, 2020

Agencies continue to offer relief and flexibility for crisis management

This week, the financial services regulatory agencies have continued to take actions to support the economy and markets in response to heightened volatility and uncertainty. Specifically:

6/19 - SEC - The Securities and Exchange Commission (SEC) announced an extension of relief from in-person voting requirements for fund boards until at least 12/31/20.

6/18 - Congress - The CARES Act Congressional Oversight Commission published its second report. It notes that there has been specified usage of less than half of the $454b allocated for lending and backstopping Federal Reserve (Fed) lending facilities. The report also questions the Fed’s decision to purchase corporate bonds on the secondary market.

6/17 - SBA & Treasury - The Treasury Department and Small Business Administration (SBA) released a revised Paycheck Protection Program (PPP) loan forgiveness application and a new shorter "EZ" forgiveness form for borrowers that are self-employed or did not reduce employee salaries by more than 25%.

6/17 - FHFA - The Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac will extend their moratorium on foreclosures and evictions from 6/30/20 to 8/31/20.

6/17 - FRBNY - The Federal Reserve Bank of New York (FRBNY) announced that $252m in loans, including $145m collateralized by commercial mortgage-backed securities, have been requested so far for the Term Asset-Backed Securities Loan Facility (TALF). FRBNY also updated several documents for the facility: Control Agreement, Credit Agreement, Investment Memorandum of Understanding, Limited Liability Company Agreement, Preferred Equity Account Agreement, Preferred Equity Investments Agreement, Security Agreement, Borrower Due Diligence Policy for TALF Agents and the Issuer and Sponsor Certification as to TALF Eligibility for ABS

6/16 - 6/17 - Fed - Fed Chair Jerome Powell testified before the Senate Banking Committee and the House Financial Services Committee on the Fed’s Semiannual Monetary Policy Report. He said that recent positive trends in economic indicators are likely due in part to relief packages from Congress and reiterated that more funding may be needed, particularly for state and local governments and the unemployed.

6/15 - FRBB - The Federal Reserve Bank of Boston (FRBB) opened the Main Street Lending Program (MSLP) for lender registration.

6/15 - Fed - The Fed proposed an expansion of the MSLP to lend to nonprofits that are at least five years old, have between 50 and 15,000 employees and have a $3 billion limit on endowments. The terms on the New and Expanded Nonprofit Loans would be identical to for profit business loans. The proposal is open for public comment until June 22.

6/15 - Fed - The Fed announced updates to the Secondary Market Corporate Credit Facility (SMCCF). As detailed in a revised term sheet and updated FAQs, the SMCCF will purchase corporate bonds to create a diversified corporate bond portfolio. Bonds in the portfolio will still have to meet SMCCF eligibility conditions regarding issuance by eligible US companies, minimum rating, maximum maturity, and other criteria.

6/15 - Fed - The Fed announced that it will resume examination activity after announcing in March that it would temporarily reduce its focus due to the crisis. The announcement notes that exams will be conducted offsite and that the Fed will work with institutions to address specific issues.

Our Take

The Fed’s announcement that it will resume examination activity is a step towards normalcy and a recognition that banks have had sufficient time to respond to the immediate demands of the crisis and adapt to the current environment. However, it is not necessarily a sign that full recovery is around the corner. As Chair Powell emphasized in his testimony this week, “significant uncertainty remains about the timing and strength of the recovery” and the possibility of full economic recovery will largely depend on public confidence about resuming activity. Powell’s point that the recently-positive trend in economic indicators is likely due in part to Congressional spending also underscores his increasingly more direct recommendation that Congress pass more stimulus, especially as certain programs such as $1200 stimulus checks and expanded unemployment insurance expire in the coming months. In addition, even though the pace of PPP demand doubled from last week with 83k new loans (up from 42k) totalling over $2b (up from $897m), there is still just under $130b available to lend with the June 30 deadline for new applications fast approaching. The Congressional fix that allowed more time to use PPP funds did not extend the application deadline, but it appears that more adjustment will be needed if Congress, SBA and Treasury want all the funds to be used - and for the current pace of economic recovery to continue.

For more information on the CARES Act, PPP, MSLP and return to work for banks, tune in to our upcoming webcast on Thursday, June 25 at 1:00pm. Register here.

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Julien Courbe

Financial Services Leader, PwC US

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