Bank regulators are granting temporary relief for some community banks whose assets have grown as a result of their response to the coronavirus pandemic, the agencies said in an interim rule released Friday.
Because they participated in the Paycheck Protection Program (PPP) and other lending that supports the U.S. economy amid the pandemic, community banks have experienced "rapid and unexpected increases" in size, which could subject them to new regulations or reporting requirements, the agencies said.
- "The relief should promote further lending and avoid potentially temporary but significant transition costs that community banking organizations would otherwise face to comply with new standards," the Federal Reserve, Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) said in the joint rule.
Lenders with less than $10 billion in assets originated 2.7 million PPP loans — 52.6% of the number originated under the program — totaling $233.7 billion, the agencies said.
Many PPP-related assets remain on banks' balance sheets, the agencies added, a result of the PPP loan forgiveness process, which some bankers and trade groups have called overly burdensome.
Although a simplified version for loans of $50,000 or less released by the SBA last month was welcomed by the industry, many have called for further actions to help streamline the process.
Citing determinations by the Small Business Administration (SBA), the regulators said significant PPP forgiveness may occur in the fourth quarter of 2020 or early in the first quarter of 2021.
"Given the rapid and unexpected nature of community banking organization asset growth in 2020, many community banking organizations are unlikely to have planned for these transition costs," the agencies said.
The interim final rule will give banks more time to either reduce their balance sheets or prepare for the higher regulatory and reporting standards associated with the higher asset thresholds, the agencies said.
Under the interim rule, which applies to financial institutions with less than $10 billion in total assets as of Dec. 31, 2019, community banks that have crossed a relevant threshold will have until 2022 to either reduce their size or prepare for new regulatory and reporting standards.
Asset growth in 2020 or 2021 will not trigger new regulatory requirements for the banks until Jan. 1, 2022, at the earliest, the regulators said.
Nine banks have expanded beyond $10 billion in assets between the end of 2019 and the second quarter of 2020, an FDIC spokesperson told American Banker on Friday.
The rule change does not relieve banks from Consumer Financial Protection Bureau (CFPB) supervision, which is triggered at the $10 billion-asset mark.
The rule also does not apply to the Volcker Rule limits on proprietary trading, the agencies said.