US Regulators To Reward Banks For Low-Income Lending

Banking regulators on Thursday (March 19) said they are going to give banks credit for letting lower-income Americans borrow money during the coronavirus pandemic, according to a report by Reuters.

The regulators also let banks know their position on using reserves and buffers during times of stress in the market, and whether that would lead to future penalizations.

Regulators, for their part, said they want to encourage lending.

The Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency all released a joint statement saying banks that give credit to low-income Americans who are battling effects from the coronavirus and its economic reverberations would be rewarded. Also, it said that the lending would help a bank’s Community Reinvestment Act (CRA) score.

FDIC Chairperson Jelena McWilliams also asked that a global accounting board let banks hold off on using newer account methods that would make banks estimate future losses on loaning. She said allowing this to happen would help banks focus on lending during the crisis.

Regulators are now asking banks to use their built-up liquidity reserves that were stocked up after the financial crisis.

“These capital and liquidity buffers were designed to provide banking organizations with the means to support the economy in adverse situations and allow banking organizations to continue to serve households and businesses,” they said.

Many banks have been reaching out and asking regulators what would happen if they did below-minimum buffer levels. Banks also have to deal with growing restrictions on things like automatic capital distributions from executive bonuses and dividends to shareholders.

They are also required to hand in liquidity plans to supervisors that detail how a bank will restore said buffers.

The largest banks have about $1.3 trillion in common equity, with an additional $2.9 trillion in liquid assets that are considered high quality.