Economy Matters

March 23, 2020

By Michael Johnson, Executive Vice President
Supervision, Regulation, and Credit
Federal Reserve Bank of Atlanta

These are unprecedented times for our country. COVID-19 is affecting the economy, the banking system, and our daily lives. Our thoughts are with all those who are suffering, as well as those assisting them. Just like you, the well-being of our families, employees, and the public is our paramount concern. To this end, the Federal Reserve Bank of Atlanta (similar to all Reserve Banks) is practicing social distancing and requiring employees to work from home, if possible. This includes staff within our Supervision, Regulation and Credit Division.

The response to COVID-19 warrants swift actions from an economic, financial stability, and supervisory perspective. As I’m sure you are aware, the Federal Reserve is taking numerous steps to address this threat by ensuring that markets continue to function and credit flows smoothly. Recently, the Federal Open Market Committee lowered the target fed funds rate and joined with other central banks to ensure the smooth functioning of U.S. dollar funding markets. The Board has established several special-purpose funding facilities for commercial paper, primary dealers, and money market mutual funds to stabilize markets, in addition to reducing reserve requirements to zero percent and lowering the rate and expanding the duration of discount window loans.

The Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation are encouraging financial institutions to use the discount window to manage liquidity and continue to provide credit for households and businesses in this stressful time. In short, we want you to borrow if you need funds to continue to meet your customers’ needs. With this specific intent in mind, the primary credit rate has been reduced, and loan terms can extend up to 90 days and are prepayable and renewable. Also, the H.4.1 weekly report, which analyzes factors affecting reserve balances, has been modified. Loans, including those made through the discount window, will be aggregated and reported with securities, a move designed to lower concerns about the information the report provides. Additional information on borrowing is available here, and you can call discount window staff directly at (888) 500-7390.

From a supervisory perspective, the agencies are taking immediate action to respond to industry concerns. The Fed’s Board of Governors has issued an interagency statement concerning loan modifications and reporting for financial institutions working with customers affected by the coronavirus. Supervisory agencies encourage financial institutions to work with borrowers, will not criticize institutions for doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings (TDR). The agencies have confirmed with the staff of the Financial Accounting Standards Board that short-term modifications—for example, six months—made in good faith in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. The joint statement also provides supervisory views on past-due and nonaccrual regulatory reporting of loan modification programs. Last week, the banking agencies released a joint statement confirming that banks will receive consideration under the Community Reinvestment Act for activities conducted in response to COVID-19. We are continuing to work diligently on a range of questions and will provide additional information as quickly as possible.

At this stage, it is vital that we understand what is happening in the industry and at your institutions. Your input is critical to informing the broader policy response and understanding implications on the ground. Please, keep the lines of communication open and do not hesitate to contact us as we work together to manage this challenge.