Factbox-Where U.S. banks won and lost in the new pandemic relief package
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[December 22, 2020] By
Pete Schroeder
WASHINGTON (Reuters) - The U.S. Congress on
Monday was scrambling to pass a $900 billion pandemic aid package,
following seven months of partisan bickering.
The banking industry aggressively pushed for extra stimulus and a raft
of other measures which would help shore up struggling borrowers and
ultimately benefit the industry.
Here is what's in the package for banks:
PPP FUNDS AND FORGIVENESS
The Paycheck Protection Program (PPP) has been the centerpiece of
Congress's efforts to help small businesses weather pandemic lockdowns.
To date, banks have dished out $525 billion in PPP loans to be repaid by
the government, provided borrowers spent the cash on qualifying
expenses.
Monday's package includes an additional $284 billion for the program and
broadens eligible PPP expenses to include items like personal protective
equipment for staff and operational costs. It also allows those expenses
to qualify for deductions, simplifying tax returns for millions of
borrowers.
Smaller companies which suffered a 25% or greater decline in 2020
revenues can seek a second PPP loan of up to $2 million.
And critically for banks, the package includes a streamlined forgiveness
process for loans of less than $150,000, requiring borrowers only sign a
one-page form attesting that the funds were used as intended. Banks had
fretted that the original forgiveness process was too onerous for
smaller borrowers.
TROUBLED DEBT RESTRUCTURINGS
Troubled Debt Restructurings (TDRs) are the accounting and regulatory
framework for loan modifications, such as deferring the loan, extending
it, or reducing monthly repayments.
Banks say TDR accounting is onerous, sometimes incurring additional
capital charges, extra operational hassles and generally acting as a
drag on banks' overall asset quality. They say banks should not be
penalized for trying to help customers who need temporary relief to keep
them afloat until the pandemic passes.
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A U.S. five dollar note is seen in this illustration photo June 1,
2017. REUTERS/Thomas White/Illustration
Congress in March suspended the process for TDR accounting through Dec. 31,
paving the way for banks to modify loans without fear of penalty. The new
package extends that relief to Jan. 1, 2022 after lenders, fearing regulators
and investors may fault them for ballooning TDRs, pushed for an extension.
CREDIT LOSS ACCOUNTING RULES
Current Expected Credit Losses or "CECL" is an incoming accounting standard that
requires financial institutions to make expected credit loss allowances for the
lifetime of a loan.
Banks say the rule adds volatility to the amount of capital they must hold and
creates incentives to reduce lending when borrowers need it most. The new relief
package gives banks the option of ignoring the new standard until 2022. Banking
groups had been pushing to delay implementation until at least 2023.
According to the American Bankers Association, of the institutions required to
implement CECL in January 2020, roughly 50 took advantage of a one-year delay
granted by CARES Act.
COMMUNITY BANK LEVERAGE RATIO
In 2018, Congress introduced a simple community bank leverage ratio for smaller
lenders to reduce their overall capital burden. The law allows regulators to set
the required level, based on a leverage ratio, at between 8% and 10%, with
regulators opting for 9%, despite community bank protests.
To boost small banks' ability to lend, the CARES Act brought this ratio down to
8% until Dec. 31. But banking groups failed to get that lower ratio extended
indefinitely.
(Reporting by Michelle Price and Pete Schroeder; Editing by Sonya Hepinstall and
Lisa Shumaker)
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