COVID-19 Update: Bank Regulators, Including the FDIC, Urge Financial Institutions To Collaborate With Pandemic-Affected Customers, Indicating a Flexible Approach

Kramer Levin Naftalis & Frankel LLP

On March 22, federal banking regulators, including the board of governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration, the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau — together with state banking regulators — issued an interagency statement to provide information to financial institutions whose borrowers may be affected by the coronavirus (COVID-19) pandemic.

The statement encourages financial institutions to work “prudently” with borrowers who may be unable to meet their payment obligations. Institutions are asked to consider loan modifications, which regulators will not categorically regard as troubled debt restructurings (TDRs) under current circumstances.

Specifically, the statement notes that short-term (e.g., six-month) loan modifications “made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief” will not be considered TDRs. Staff of the Financial Accounting Standards Board (FASB) has confirmed this position, according to the agencies. Examples of such modifications include payment deferrals, fee waivers, extensions of repayment terms or other delays in payment “that are insignificant.” The borrower’s current status prior to the modification may be “presumed” for such purposes. In addition, loan modification efforts for one-to-four-family residential mortgages will not result in the loans being considered restructured or modified for purposes of risk-based capital.

The interagency guidance follows a March 13 statement from the FDIC urging financial institutions to “work with affected customers and communities,” including by waiving fees, accommodating late payments, increasing daily withdrawal limits, easing restrictions on check-cashing and increasing credit card limits. The March 13 statement also encouraged financial institutions to “work constructively with borrowers in communities and industries affected by COVID-19.” The FDIC wrote that a bank should modify or restructure a loan due to “temporary hardships” resulting from the illness.

The FDIC also indicated in such guidance that it will work with affected financial institutions to reduce examination burdens, including making greater use of off-site reviews, consistent with applicable legal and regulatory requirements. The FDIC will judge each bank during these circumstances according to its “particular circumstances” and will not assess penalties in the event of reporting deficiencies attributable to COVID-19 where “reasonable and prudent steps” have been taken to comply.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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