#2020-40, November 20, 2020

Virtual Hill Visit with House Ways & Means Chairman Richard Neal

Today members of the Massachusetts Bankers Association staff met with House Ways and Means Committee Chair Richard Neal in a virtual meeting on Zoom.  Chairman Neal represents the first district in Massachusetts, which covers cities and towns in western Massachusetts.  He praised community banks for the tremendous work to support their communities, particularly during the pandemic.

Chairman Neal shared his efforts to advocate for another round of stimulus checks, expanding the employee retention tax credits, more funds for hospitals, and the extension of unemployment insurance benefits expiring at the end of the year.  Rep. Neal is also one of the conferees on the National Defense Authorization Act (NDAA), which is a potential vehicle for stimulus measures and contains the MBA-supported Bank Secrecy Act (BSA) language to create a national beneficial ownership registry at the Treasury.

Many thanks to Michael Tucker, president and CEO, Greenfield Cooperative Bank, who also joined the videoconference. He expressed the need for:

• Another round of Paycheck Protection Payment (PPP) funds to help small businesses that are still struggling;
• A higher threshold for the forgiveness of small business loans up to $150K;
• An extension of accounting relief for COVID modifications under the CARES Act to prevent Troubled Debt Restructurings (TDRs) and;
• Protection from anti-money laundering laws for banks that wish to provide banking services to cannabis-related businesses.

A special thanks to the Independent Community Bankers of America for helping to arrange today’s meeting.

Mnuchin Declines to Extend Fed Emergency Credit Facilities

In a letter to Federal Reserve Chairman Jerome Powell this week, Treasury Secretary Steven Mnuchin asked the central bank to return unused funds in several of the emergency credit facilities created to respond to the COVID-19 pandemic to the Treasury.  These include the Main Street Lending Program, the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Term Asset-Backed Securities Loan Facility and the Municipal Liquidity Facility.

As we have reported previously, Treasury approved $195 billion in CARES Act funding for these facilities, supporting lending capacity of about $2 trillion.  However, only $25 billion has actually been lent and Mnuchin’s letter notes that returning these funds would “allow Congress to re-appropriate $455 billion.”  Secretary Mnuchin did ask the Fed to extend two other facilities -- the Commercial Paper Funding Facility and the Money Market Mutual Fund Liquidity Facility – that use Treasury funding as well as the Primary Dealer Credit Facility and PPP Liquidity Facility, which did not use Treasury funding, for 90 days.

The Fed released a statement noting that it “would prefer that the full suite of emergency facilities established during the Coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”

To read Secretary Mnuchin’s letter, click here.

IRS Clarifies Deductibility of Qualified PPP Expenses

This week, the Internal Revenue Service (IRS) issued a ruling that borrowers submitting Paycheck Protection Program loan forgiveness applications for approval are required to disallow a deduction for qualified 2020 expenses in 2020 tax returns, even when the forgiveness application has not been approved or filed by the end of the year.  The ruling was issued in response to questions raised about non-deductible expenses in situations where the expenses are paid in 2020 and the forgiveness of the loan may not occur until 2021.  The agency also issued a revenue procedure that provides guidance for PPP borrowers that either do not apply for forgiveness or have all or part of the forgiveness application denied.

To read the IRS ruling, click here.  To read the revenue procedure, click here.

FHFA Issues Final GSE Capital Rule

The Federal Housing Finance Agency issued a final regulatory capital framework for Fannie Mae and Freddie Mac this week that begins the process of the housing GSEs exiting federal conservatorship.  Under the rule, which is effective 60 days after publication in the Federal Register, Fannie and Freddie will be required to hold approximately $280 billion in capital based on their current portfolios. 

The final rule includes a number a changes from the initial framework proposed in 2018, including increasing the dollar amount of capital relief afforded to Fannie and Freddie’s credit risk transfers; improving the mitigation of the model risks associated with a mortgage risk-sensitive framework; fully aligning credit risk capital requirements with those of other market participants; and reducing credit risk capital requirements on single-family mortgage exposures to borrowers affected by COVID-19.  The rule also imposes backstop leverage requirements; addresses pro-cyclicality through buffers and other measures; and requires each of the GSEs to calculate its risk-based capital requirements using its internal models and maintain the greater of the regulatory capital required under the advanced approach or the standardized approach.

To read more, click here.

President will Nominate Brooks for Comptroller

The White House indicated that President Trump intends to nominate Acting Comptroller of the Currency Brian Brooks to a full five-year term.  Brooks, who joined the OCC in March as first deputy comptroller and COO, has served as acting comptroller since May.  It is not clear if the Senate will consider his nomination this year.