PROVIDENCE – Paycheck relief loans are the topic du jour when it comes to the federal stimulus package and lenders, but that’s not the only way the $2 trillion relief plan is affecting financial institutions.
The Coronavirus Aid, Relief, and Economic Security Act lays out a number of changes aimed at easing the burden on banks and credit unions for working with borrowers, reporting requirements and the amount of capital they need to keep in reserve.
Perhaps the most significant of these changes in the eyes of Rhode Island bank and credit union leaders is relief on troubled debt restructuring, which is designed to encourage lenders to work with borrowers who need to modify the terms of their loan.
“This is a really good example of something that will encourage banks to help their borrowers in the near term rather than step away and preserve their capital position,” said Mark K. W. Gim, president and chief operating officer of The Washington Trust Co.
Typically, the additional federal scrutiny, reduced capital levels and administrative hassle that accompanies a troubled debt restructuring doesn’t exactly incentivize lenders to work with their financially struggling borrowers on such changes. Under the relief portion of the bill, lenders can work with borrowers on changes such as reducing accrued interest, extending the maturity date of the loan, or even deferring payments.
In the wake of this decision, Pawtucket Credit Union has set up a payment deferral program allowing those with home equity, boat or mortgage loans to defer up to two months of payments. Already, many borrowers have called to ask about the details or indicated they will take advantage of the offer, said George Charette, Pawtucket Credit Union CEO and president.
The stimulus bill also lowers the capital reserve ratio community banks have to keep on hand from 9% to 8%, and delays the onset of new accounting requirements for credit losses.
Taken as a whole, the looser regulations and reporting requirements ease the burden on financial institutions, which is particularly important as they grapple with serving existing borrowers and those seeking forgivable loans through the Paycheck Protection Program.
“If we’re looking at regulations first and communities second, we won’t be putting the right priorities in place,” Gim said.
Nancy Lavin is a staff writer for PBN. Contact her at Lavin@pbn.com.