Regulators & Banks Can Work Together to Weather the COVID-19 Storm

Government officials continue to respond to COVID-19 and that applies to bank regulators as well. The FDIC issued FIL-17-2020 which encourages financial institutions to assist its customers and communities affected by the virus. In this letter, the FDIC recognizes the “unique and evolving” situation and states that a bank’s prudent efforts to modify loans of affected customers will not be subject to examiner criticism. Special attention is to be given to customers in industry sectors most vulnerable (industries listed include airlines, energy companies, travel, tourism, shipping industries, and small businesses). Specific efforts listed in the letter include:

• Waiving certain fees (e.g., late fees and overdraft fees)
• Increasing credit limits for creditworthy customers
• Offering payment accommodations such as payment deferments

The FDIC stresses that banks can work with their customers while at the same time satisfying its safety and soundness obligations. For example, the letter states that a bank could extend the term of a loan for a borrower who is experience liquidity problems, but otherwise satisfies the bank’s underwriting standards. The letter goes on to state the FDIC will work with banks when scheduling examinations to lessen the impact of examinations and will make greater use of off-site reviews.The FDIC has established a website as a resource to financial institutions: Coronavirus (COVID-19) Information for Bankers and Consumers.
 
Similar to FIL-17-2020, the OCC issued OCC Bulletin 2020-15 in response to COVID-19. In it, the OCC encourages financial institutions to work with customers including the waiver of certain fees and the offering of repayment accommodations. Banks are cautioned to analyze loans on a case-by-case basis to determine if modifications are warranted.
 
The FFIEC has issued updated guidance identifying actions that financial institutions should take to minimize the potential adverse effects of this pandemic.
 
Alabama Superintendent of Banks Mike Hill issued a memorandum to banks in which banks are asked to review their continuity and pandemic planning and implement those plans as deemed necessary. The Alabama Banking Department asks that banks keep the Department informed of any issues related to COVID-19 such as branch closings, cash shortages, etc. Banking departments for other states are issuing similar notices. 
 
As with many things during this time, the impact of COVID-19 on financial institutions and the regulatory response remains unknown. Financial institutions should continue to make decisions using safety and soundness principles though taking into account individual customer circumstances. Communication is key.  Forbearance by the regulators on extraordinary regulatory actions could also help the financial institutions weather the impact of this storm while allowing their customers to do the same.  To that end, financial institutions should stay in regular contact with their regulators and should make sure that their customers remain informed at the same time.