Various financial regulators have taken actions since March 2020 to address economic concerns resulting from the COVID-19 pandemic. The focus of many of these actions has been the liquidity and stability of the financial markets and the financial health of the broader economy, specifically small businesses. These regulatory actions included the creation of the Paycheck Protection Program (PPP) administered through the Small Business Administration (SBA) as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the related available funding mechanism of the PPP Liquidity Program, and other similar programs that supported funding and liquidity for mutual funds and expected fund withdrawals. These actions have generally resulted in increases in the size of the balance sheet total assets of many Insured Depository Institutions (IDIs).
A consequence of the increase in assets is that some IDIs may find themselves unexpectedly faced with compliance requirements for certain audit, reporting and board governance provisions under part 363 of the Federal Deposit Insurance Corporation (FDIC) Rules and Regulations for their 2021 fiscal year. These rules typically apply to an IDI with $500 million in assets as of the beginning of its fiscal year, with incremental requirements attaching at $1 billion and $3 billion in assets. The FDIC has acknowledged concern over causing additional cost and effort for these IDIs based on what may be a temporarily inflated balance sheet.
As a result, on Oct. 20, 2020, the FDIC announced temporary relief from its part 363 audit and reporting requirements in the form of an Interim Final Rule. The rule was immediately effective upon publication in the Federal Register on Oct. 23, 2020, but does have a 30-day comment period under various governmental administrative procedure requirements.
The Interim Final Rule will allow an IDI to determine its auditing and reporting requirements under part 363 using the lessor of a) its consolidated total assets as of Dec. 31, 2019, or b) its consolidated total assets as of the beginning of its fiscal year ending in 2021, both as reported in its respective Call Reports. As an example, a calendar year IDI would use the lower of its consolidated assets per its Call Reports as of Dec. 31, 2019, or Dec. 31, 2020. For an IDI with a June 30 year-end, it would be the lower of the consolidated assets as of Dec. 31, 2019, or June 30, 2020. This temporary relief, which will remain in effect until Dec. 31, 2021, does not alleviate any otherwise applicable statutory and regulatory reporting requirements.
The FDIC realized that this temporary relief may benefit some IDIs that would have triggered the part 363 requirements through organic growth alone, but they considered that to be an acceptable result in the circumstances. However, the FDIC did reserve the right to enforce compliance with one or more sections of part 363 if an IDI triggered the thresholds as a result of a merger or acquisition.
The FDIC’s press release includes links to the text of the Interim Final Rule.
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