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Update on Bank Regulatory Agencies’ Guidance on Continued Lending to Households and Businesses during COVID-19 Pandemic

Last Friday, we published a summary of the recent actions taken by federal and state bank regulatory agencies to encourage financial institutions to continue lending to households and businesses in the wake of the COVID-19 outbreak. In addition to the measures identified in that Alert, on Sunday, March 22, 2020, the Federal Reserve, FDIC, OCC, CFPB, NCUA and Conference of State Bank Supervisors issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. This Interagency Statement represents the most detailed guidance the regulatory agencies have released on this topic to date, and provides for the following:

  • The agencies will not criticize financial institutions for using prudent actions consistent with safe and sound practices to work with borrowers affected by the COVID-19 outbreak.
  • Short-term modifications of up to six (6) months, such as payment deferrals, fee waivers, extensions or other payment accommodations that are “insignificant” are not treated as troubled debt restructurings (TDR) under GAAP if they are made in good faith in response to the COVID-19 outbreak[1].
  • Banks may presume that borrowers who are current on loan payments at the time of the modification were not otherwise experiencing financial difficulties for TDR analysis.
  • Modifications of 1-4 family residential mortgages that were prudently underwritten and not past due or in nonaccrual status will not be considered restructured or modified for risk-weighting purposes under the risk-based capital rules.
  • Loans for which banks provide financial accommodations due to COVID-19 should not be designated as past due simply because of the modification.
  • Existing classified loans for which banks provide financial accommodations due to COVID-19 as part of a risk mitigation strategy intended to improve loan classification should not be placed in nonaccrual status.

Over the course of the coming days and weeks, we anticipate the agencies will continue to announce other programs and initiatives aimed at facilitating the continued flow of credit to households and businesses. We will continue to update our Alerts as additional guidance becomes available. For any questions regarding the agencies’ Interagency Statement or other guidance, please contact Bruce Toppin by e-mail at btoppin@langleybanack.com or by telephone at (210) 253-7102.

[1] See ASC 310-40.

Authors

Bruce E. Toppin, III

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Mr. Toppin’s practice concentrates on representing banks, thrifts and other financial institutions on corporate and regulatory matters, such as mergers, acquisitions, securities offerings, holding company formations, Subchapter S conversions, corporate governance, de novo charters, enforcem...

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