As Stimulus Talks Drag On, Crapo Asks NCUA & Others for Regulatory Help

As negotiations over a new coronavirus economic stimulus measure falter, Senate Banking Chairman Mike Crapo (R-Id.) last week asked federal banking regulators, including the NCUA, to provide regulatory relief to financial institutions that might face stricter rules as a result of a temporary increase in their balance sheets.

“Banks and credit unions must not be deterred from continuing to play a key role in the recovery and must maintain ample flexibility to serve customers and work with those affected by the pandemic,” Crapo wrote in his letter.

Crapo noted that amid the uncertainty surrounding COVID-19, financial institutions experienced a significant increase in deposits. In addition, those banks and credit unions used their own funds to make loans under the Paycheck Protection Program.

As a result, banks and credit unions have experienced significant balance sheet growth, which will decline as borrowers meet their PPP loan forgiveness terms.

“In the meantime, many banks and credit unions may now unexpectedly face surpassing certain asset-based regulatory thresholds,” Crapo wrote. “Crossing these thresholds would entail new, expensive and burdensome regulatory requirements to which they would not have otherwise been subject.”

He then asked the regulators to use their discretion to minimize the regulatory impact of that balance sheet growth.

At its September board meeting, the NCUA board was told that credit unions had experienced share growth of almost 13% through the first six months of this year. As a result, the Share Insurance Fund’s equity ratio fell to 1.22% - extremely close to the 1.20% threshold that would require a restoration plan.

That could mean that a premium would need to be imposed on federally insured credit unions, although board members seemed reluctant to take such a step.

To ensure that credit unions have the liquidity to assist members, credit unions also have been pushing for an extension of the expansion of the NCUA’s Central Liquidity Facility. In addition, they have been advocating for an extension of the Troubled Debt Restructuring exemption.

Those provisions were included in the coronavirus crisis response legislation enacted earlier this year, but they expire at the end of 2020.

Meanwhile, Congress has continued to haggle over the next round of stimulus legislation. Senate Majority Leader Mitch McConnell (R-Ky.) announced Tuesday morning that the Senate will vote next week on legislation to extend the PPP program.

“When the full Senate returns on October 19, our first order of business will be voting again on targeted relief for American workers, including new funding for the PPP,” McConnell said. “Unless Democrats block this aid for workers, we will have time to pass it before we proceed as planned to the pending Supreme Court nomination as soon as it is reported by the Judiciary Committee.”

Democrats have said they oppose considering piecemeal legislation, such as a renewal of PPP, and instead, have been pushing for a comprehensive bill.

“Only providing assistance through PPP ignores the pleas Congress has heard from small employers – the ones most at risk as we enter flu season – that PPP is inadequate to meet their needs,” House Small Business Chairwoman Nydia Velázquez (D-N.Y.) said.