US Agencies Guide Entities to Work with Borrowers Affected by COVID-19
The US regulatory agencies and the state banking regulators issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. These agencies are Conference of State Bank Supervisors, CFPB, FDIC, FED, NCUA, and OCC. In addition, FASB stated that this guidance, by the US Agencies, on the approach to the accounting for loan modifications, in light of the economic impact of the coronavirus pandemic, was developed in consultation with the FASB staff. FASB concurs with this approach and stands ready to assist stakeholders with any questions they may have during this time.
The agencies encourage financial institutions to work with borrowers, will not criticize institutions for doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings. The joint statement also provides supervisory views on past-due and nonaccrual regulatory reporting of loan modification programs. The agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers and lead to improved loan performance and reduced credit risk. The statement reminds institutions that not all modifications of loan terms result in a troubled debt restructuring.
Short-term modifications made on a good faith basis in response to COVID-19 to borrowers that were current prior to any relief are not troubled debt restructurings. This includes short-term—for example, six months—modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The agencies' examiners will exercise judgment in reviewing loan modifications, including troubled debt restructurings, and will not automatically adversely risk-rate credits that are affected, including those considered troubled debt restructurings. Regardless of whether modifications are considered troubled debt restructurings or are adversely classified, agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.
With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. Payment date of a loan is governed by the due date stipulated in the legal loan documents. If a financial institution agrees to a payment deferral, this may result in no contractual payments being past due and these loans are not considered past due during the period of the deferral. Institutions are reminded that loans that have been restructured as described under this statement will continue to be eligible as collateral at the FED discount window based on the usual criteria.
Related Links
Keywords: Americas, US, Banking, Accounting, CECL, Credit Risk, NPLs, Troubled Debt Restructuring, COVID 19, FASB, US Agencies
Featured Experts
Jun Chen
A well-recognized researcher in the field; offers many years of experience in the real estate finance industry, and leads research efforts in expanding credit risk analytics to commercial real estate.
Cristian deRitis
Leading economist; recognized authority and commentator on personal finance and credit, U.S. housing, economic trends and policy implications; innovator in econometric and credit modeling techniques.
Anna Krayn
CECL adoption expert; engagement manager for loss estimation, internal risk capability enhancement, and counterparty credit risk management
Previous Article
PRA Relaxes Reporting and Disclosure Deadlines for InsurersRelated Articles
NGFS Seeks Public Feedback on Climate Risk Assessment Scenarios
The Network for Greening the Financial System (NGFS) launched its first user feedback survey on climate scenarios, with the feedback period ending on February 27, 2023.
EBA Launches Stress Tests for Banks, Issues Other Updates
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
