MONTH-IN-BRIEF (Mar 2020)
Banking Law
Banking Regulators Release Interagency Statement on COVID-19 Related Loan Modifications
By Covington Financial Services, Covington & Burling LLP
On March 22, 2020, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the Conference of State Bank Supervisors released an Interagency Statement encouraging financial institutions to work with borrowers affected by COVID-19, consistent with safety and soundness standards.
Specifically, the guidance states that the agencies will not criticize financial institutions for working with borrowers, and will not direct financial institutions to automatically categorize all COVID-19 related loan modifications – such as short term (e.g., six month) payment deferrals, fee waivers, or extensions of repayment terms – as troubled debt restructurings (“TDRs”) for regulatory and financial reporting purposes. In addition, the statement provides that the agencies’ examiners will exercise judgment in reviewing prudent loan modifications, and will not adversely risk rate credits that are affected by COVID-19, even if considered TDRs. Finally, the guidance provides that short-term deferrals granted due to COVID-19 should not be reported as past due, and loans that are modified due to COVID-19 should not be reported as nonaccrual assets. The statement reminds financial institutions that such loans may serve as eligible collateral at the Federal Reserve’s discount window.