While the Federal Reserve has pledged to loot billions of dollars through major banks to keep financial markets in motion and deployed corporate debt support, the most serious economic aspect of the coronavirus crisis remains to be resolved: how to get funds all the way to families and small businesses with the biggest closings across america.
Thousands of community and regional banks across the country can be a solution.
Using a game book they developed over the years to cope with the flood and tornado crises of Sandy Storm, which devastated the east coast in 2012, many have already started to help their own customers.
OceanFirst, a 118-year-old bank with $ 10.2 billion in assets headquartered in the coastal city of Toms River, New Jersey, obtained Fed approval on March 15 on a Sunday. grant 90 days of forbearance to clients on both mortgages and business loans.
Chris Maher, its chief executive, said his bank had signed hundreds of such deals after Sandy: “These are good loans and good borrowers who were struck aside and took 90 days to recover. And I think we’re going to see a lot of them here. ”
Over the past week, OceanFirst has shared with banks as far back as Washington State the model it developed after Sandy, including forbearance legal documents. Maher also said he had raised interest rates on mortgages to discourage refinancing and free his loan officers to respond to the pandemic.
As the scale of the collapse of in-person services to stop the spread of the coronavirus becomes apparent, the scale and success of the efforts of community banks like these will be crucial.
Congress is still negotiating the terms of a bailout that will likely increase loans considerably through the Small Business Administration. The Fed will lend to a special vehicle that will buy auto debts and student loans, and has announced that it will soon be clearing up a direct small business loan plan as well. But all of these steps will take time to accelerate.
Patrick Harker, President of the Philadelphia Fed, told the Financial Times that, while the central bank used its markets office to inject liquidity into global financial markets, the role of the Fed as regulator was just as important . Right now, it can allow local banks to be creative with their own customers.
“One of the challenges we face is that small businesses and households are really suffering from this,” said Mr. Harker. “And who mainly serves these small businesses? These are the community banks. ”
Koger Propst is the CEO of ANB Bank, which has $ 2.6 billion in assets and a presence in Colorado, Wyoming and Kansas City. He said he had previously asked employees to call each of the bank’s 3,700 borrowers to offer a three-month deferral on all commercial, home and auto loans.
“The vast majority of businesses cannot survive where you go from normal income to zero percent of that income. . . in a period of two weeks, “he said. “We are a community bank. So we set it up in three days.”
OceanFirst’s Maher said his conversations with regulators over the past month had been dramatically different from those of the 2008 global financial crisis. “We know this is not a problem created by the banks,” did he declare. “We understand the difference and we want to try to help you help the economy.”
According to the Fed, “employer businesses” – those with at least two employees but less than 500 – are more likely to have an existing relationship with a small bank with less than $ 10 billion in deposits, like OceanFirst. They are also more likely to get loan approval from a small bank than from a large bank. (They are even more likely to be approved by an online lender such as Lending Club, OnDeck or PayPal Working Capital, which are not directly regulated by the Fed.)
Harker said the Fed is urging small banks to stay flexible and stay in touch. “Not only do we work with customers, but we work with us, the regulators,” he said. “There is no manual for what we are going through exactly. So let’s try to understand this together.”
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Both Mr. Propst and Mr. Maher said they had been in frequent contact over the past month with Fed and other regulators. They agree that the most important supervisory measure has been to clarify that short-term loan changes for customers affected by the current crisis will not be considered “restructuring of distressed debt”, a designation with consequences accountants for the bank who remain for the life of the loan.
A group of six regulators covering all American banks together confirmed the decision on Sunday with a joint statement.
What is less clear at the moment is what happens to loans that become problematic after the long-term consequences of the virus. “It’s not a cure. It’s just a bridge,” said Mr. Propst, referring to his bank’s loan deferrals. “The music can’t stop and start again in 60, 90 days and everyone continues as if nothing had happened. So we will have borrowers in difficulty. “