The PPP hangover
TBA has estimated that for Texas community banks there has been unsolicited deposit inflow of more than $107 billion.
The Paycheck Protection Program extension officially expired May 31, but the PPP hangover and headaches for banks could last for months or possibly years ahead unless reasonable regulatory remedies can be applied.
Community bankers across the state are concerned about how regulators will view swollen deposits that were principally sourced from the special interventions of PPP and other government programs. Thus far, however, the signals coming from the federal agencies have not been encouraging.
Outgoing TBA Chairman Chip Jenkins, new Chairman Rusty Rust and I sent a letter to FDIC Chair Jelena McWilliams on May 17 stating that “the extraordinary monetary and fiscal policies appropriately attendant to the COVID-19 pandemic have had the effect of driving unprecedented bank liquidity through massive deposit flows, which have the impact, of course, of driving down capital levels.”
TBA has estimated that for Texas community banks there has been unsolicited deposit inflow of more than $107 billion.
“This is a positive development, and our member institutions are pleased to provide a safe repository of the funds from individuals, businesses, governmental bodies and other local entities,” we wrote. “But the goal should also be the prudent reinvestment of these funds into additional lending, which is being impeded by a higher than necessary CBLR.”
With pandemic related temporary CBLR relief provisions expiring at the end of this year, we requested that the FDIC Board delay their slated return to implementation of the 9% CBLR. Further, we asked that the FDIC Board consider implementing an 8% ratio “for a minimum of 18 months or at the very least keeping the current 8.5% CBLR through Dec. 31, 2022.”
There is optimism that demand for business lending will rise and there will be similar developments within the household sector. But this will not happen overnight.
The FDIC Board should recognize these realities and provide additional relief. Given the historic support provided by banks to our government and communities in response to COVID-19, and the ongoing role banks must play in the recovery, it is not too much to ask.
Thank you, Chip! Congratulations, Rusty!
On May 18, TBA held its Annual Meeting enabling TBA’s board leadership transition. The TBA staff would like to salute Chip Jenkins for his outstanding service as TBA Chairman during an unprecedented year. His cool and steady guidance during the pandemic and focus on meeting member needs during the challenges of COVID-19 has been remarkable. Thank you, Chip!
We are excited to welcome our new Chairman Rusty Rust. An experienced board member and passionate Texas banker, Rusty, along with Vice Chairman Ford Sasser and Treasurer David Osborn, will be excellent representatives of our association and industry in what will be an exciting year. We look forward to honoring you when we meet for TBA’s 136th Annual Convention in Austin Aug. 25-27!