https://www.linkedin.com/pulse/here-cares-act-statutes-could-cause-next-black-swan-michael-mescher/

Barring an extension of the CARES Act or comparable stimulus legislation, December 31st represents the end of favorable accounting treatment for many financial institutions.

Why aren't more people talking about this? Because most people will not know until it is too late.

Here are a few select passages from CARES Act Sections 4012 - 4014:

Section 4012 b.1.B

"A qualifying community bank that falls below the Community Bank Leverage Ratio...shall have a reasonable grace period to satisfy the Community Bank Leverage Ratio. The interim rule...ending...Dec 31, 2020.

During a grace period...a qualifying community bank...may continue to be treated as a qualifying community bank and shall be presumed to satisfy the capital and leverage requirements."

Section 4013 b.1

"During the applicable period, a financial institution may elect to:

A) suspend the requirements under United States generally accepted accounting principles for loan modifications related to the coronavirus disease 2019 pandemic that would otherwise be categorized as a troubled debt restructuring; and

B) suspend any determination of a loan modified as a result of the effects of the coronavirus disease 2019 pandemic as being a troubled debt restructuring, including impairment for accounting purposes."

Section 4014.2.b

"Notwithstanding any other provision of law, no insured depository institution, bank holding company, or any affiliate thereof shall be required to comply with the Financial Accounting Standards Board Accounting Standards Update No. 2016-13 (Measurement of Credit Losses on Financial Instruments). including the current expected credit losses methodology for estimating allowances."

While this can could be kicked down the road with additional stimulus, we believe it represents a potential catalyst for significant near term volatility.