US Agencies Issue Statement on Additional COVID-19 Loan Accommodations
FFIEC, on behalf of its members that include US Agencies such as CFPB, FDIC, FED, NCUA, and OCC, issued a joint statement that sets out prudent risk management and consumer protection principles for financial institutions to consider while working with borrowers. This joint statement has been issued just as loans near the end of the initial loan accommodation periods provided during the COVID-19 event. These principles are consistent with the Interagency Guidelines Establishing Standards for Safety and Soundness and are generally applicable to both commercial and retail loan accommodations. The statement also addresses issues relevant to accounting, regulatory reporting, and internal control systems of the supervised financial institutions.
FFIEC and its member US agencies encourage financial institutions to consider prudent accommodation options that can ease cash flow pressures on affected borrowers, improve their capacity to service debt, and facilitate institutions’ ability to collect loans, in line with the applicable laws and regulations. Such arrangements may mitigate the long-term impact of a financial challenge on borrowers by helping to avoid delinquencies or other adverse consequences. Effective risk management includes providing clear, conspicuous, and accurate communications and disclosures to inform borrowers of affordable and sustainable accommodation options prior to the end of the accommodation period. Sound credit risk management includes applying appropriate loan risk ratings or grades and making appropriate accrual status decisions on loans affected by the COVID event. For a borrower that continues to experience financial challenges after an initial accommodation, it may be prudent for the financial institution to consider additional accommodation options to mitigate losses for the borrower and the financial institution.
Financial institutions must follow applicable accounting and regulatory reporting requirements for all loan modifications, including additional modifications for borrowers that may continue to experience financial hardship at the end of the initial accommodation period. This includes maintenance of appropriate allowances for loan and lease losses (ALLL) or allowances for credit losses (ACL), as applicable. In accordance with the U.S. generally accepted accounting principles (GAAP) and regulatory reporting instructions, management should consider the effects of external events, such as the COVID-19 event, in its allowance estimation processes. Section 4013 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings, for a limited period, to account for the effects of the COVID-19 event.
Internal controls for initial and additional accommodation periods include quality assurance, credit risk review, operational risk management, compliance risk management, and internal audit functions that are commensurate with the size, complexity, and risk of the activities of a financial institution. These internal control functions typically include appropriate targeted testing of the process for managing each stage of the accommodation. Prudent testing by internal control functions typically confirm that accommodation terms are extended with appropriate approval; and risk rating assessments are timely and appropriately supported. It also confirms that additional accommodation options offered to borrowers are presented and processed in a fair and consistent manner and comply with applicable laws and regulations, including fair lending laws.
Related Links
Keywords: Americas, US, Banking, COVID-19, Credit Risk, CARES Act, Reporting, US GAAP, IFRS 9, ALLL, Loan Moratorium, Payment Deferrals, US Agencies
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant
Related Articles
EBA Publishes Final Regulatory Standards on STS Securitizations
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
ECB Further Reviews Costs and Benefits Associated with IReF
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
EBA Publishes Funding Plans Report, Receives EMAS Certification
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
IOSCO Welcomes Work on Sustainability-Related Corporate Reporting
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
BoE Allows One-Day Delay in Statistical Data Submissions by Banks
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
ACPR Amends Reporting Module Timelines Under EBA Framework 3.2
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies
The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)
APRA to Modernize Prudential Architecture, Reduces Liquidity Facility
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.
