Summary
One of the principal functions of the Federal Reserve is to regulate and promote the safety, soundness, and efficiency of supervised financial institutions. Recent events have caused tremendous hardship and created unprecedented challenges across the entire economy, significantly affecting households and businesses and the financial institutions that serve them. This unique and evolving situation poses wide difficulties, including temporary business disruptions, layoffs, and other significant challenges. Uncertainty surrounding the magnitude and duration of the shock adds further complexity to the policy response.
The Federal Reserve has taken decisive action to support our nation's economy, maintain the supply of credit to both businesses and households, and cushion the impact of the crisis. These steps were intended to help the economy bridge the sharp, unexpected contraction in activity, while providing time to address the public health concerns. The actions use existing flexibility in the regulatory and supervisory framework and do not roll back the measures that allowed the banking sector to enter this crisis as a source of strength to support the continued flow of credit to households and businesses. The global banking system is more resilient and better placed to sustain financing to the real economy as a result of regulatory reforms enacted, and measures taken by the banking industry, in the aftermath of the 2008 global financial crisis.
Financial institutions play an important role in helping households and businesses respond to the current challenges. The regulatory and supervisory actions taken by the Federal Reserve since March are intended to help financial institutions deploy their resources as efficiently as possible while continuing to support their customers and local economies in a prudent and fair manner. Technical changes to regulatory capital and liquidity rules, for example, made it easier for financial institutions to use the Federal Reserve's emergency facilities and support prudent lending. Some of the other actions taken include
- encouraging financial institutions to make use of the flexibility built into existing financial standards—such as using capital and liquidity buffers—to support continued lending,
- encouraging financial institutions to work prudently with borrowers who may be unable to meet their contractual payment obligations because of the effects of current events,
- refocusing supervisory work toward monitoring and outreach to help financial institutions understand the challenges and risks of the current environment,
- allowing smaller firms to file certain regulatory reports late without penalty in recognition of disrupted operations and likely reduced staff availability, and
- making temporary regulatory changes to support lending to households and businesses.
During the crisis, the Federal Reserve continues to communicate with financial institutions through statements, webinars, frequently asked questions, and other means.1
References
1. The Federal Reserve maintains a public list of supervisory and regulatory actions available at https://www.federalreserve.gov/supervisory-regulatory-action-response-covid-19.htm. Related supervision and regulation FAQs are available at https://www.federalreserve.gov/covid-19-supervisory-regulatory-faqs.htm. Return to text