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The impact of the CARES Act on financial institutions

Mar 30, 2020

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2 trillion stimulus package, includes several provisions that directly impact financial institutions:

Section 4012 – Temporary relief for community banks

  • Requires the Federal banking agencies by interim rule to temporarily reduce the Community Bank Leverage Ratio (CBLR) for qualifying community banks from 9 percent to 8 percent, and provide for a reasonable grace period if a community bank’s CBLR falls below the prescribed level. The interim rule expires at the earlier of December 31, 2020, or the date on which the public emergency declaration related to coronavirus is terminated.

Section 4013 - Temporary relief from troubled debt restructurings (“TDR’s”)

  • For loan modifications made between March 1, 2020, and the earlier of (1) 60 days after the national emergency concerning COVID-19 terminates or (2) December 31, 2020, financial institutions may elect to suspend the requirements for loan modifications related to the coronavirus disease 2019 (COVID–19) pandemic that would otherwise be categorized as a troubled debt restructuring, provided the loans were not more than 30 days past due as of December 31, 2019.

Section 4014 - Optional temporary relief from current expected credit losses

  • No insured depository institution, bank holding company, or any affiliate thereof shall be required to comply with the Financial Accounting Standards Board Accounting Standards Update No. 2016–13 (‘‘Measurement of Credit Losses on Financial Instruments’’), including the current expected credit losses methodology for estimating allowances for credit losses, from the date of enactment of this Act to the earlier of (1) the date on which the national emergency concerning COVID-19 terminates or (2) December 31, 2020.

Section 4013 allows significant additional latitude for restructuring loans without having to evaluate for TDR accounting.  There are many other provisions of this act that will have a meaningful impact for financial institutions during 2020 beyond the accounting impacts noted above.

Get more information in our article that break downs the stimulus package.

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Nick G. Ansley, CPA
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