Prudent Action Sought, But Criticism Won’t Be Forthcoming
March 22, 2020
Late in the afternoon, Sunday, March 22, state and federal regulatory agencies issued guidelines that encourage relaxed approaches to Americans struck by COVID-19. The statement was issued by the Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; National Credit Union Administration Office of the Comptroller of the Currency; Consumer Financial Protection Bureau; and, Conference of State Bank Supervisors
The statement encourages financial institutions to work constructively with borrowers affected by COVID-19 and provide additional information regarding loan modifications.
In their statement, the agencies announced they encourage financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. The agencies view loan modification programs as positive actions that can mitigate adverse effects on borrowers due to COVID-19. The agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID19 related loan modifications as troubled debt restructurings (TDRs).
The agencies also announced they will not criticize financial institutions that mitigate credit risk through prudent actions consistent with safe and sound practices. The agencies consider such proactive actions to be in the best interest of institutions, their borrowers, and the economy. This approach is consistent with prior longstanding practice of encouraging financial institutions to assist borrowers in times of natural disaster and other extreme events.
Read the complete COVID-19 announcement.
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The Bottom Line
Most financial institutions have tremendous excess capacity in their existing branches today.