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
Related Articles
FCA Consults on Regulation of International Firms in UK
FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.
MAS Amends Notice on Capital Adequacy Requirements of Banks
MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.
FCA to Begin to Move Firms to New Data Collection Platform RegData
FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.
APRA Reviews Repayment Deferral Plans, Identifies Best Practices
APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.
ESAs Assess Risks to Financial Sector After COVID-19 Outbreak
ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.
BoE Confirms Withdrawal of COVID Corporate Financing Facility
BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.
ESAs Launch Survey on Templates for Product Disclosures Under SFDR
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB Proposes Integrated Reporting Framework to Reduce Burden for Banks
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
EC Deems UK Framework for CCPs Temporarily Equivalent to EMIR Rules
EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).
EBA to Phase Out Guidelines on Loan Repayment Moratoria
EBA has decided to phase out the guidelines on legislative and non-legislative moratoria of loan repayments, in accordance with the earlier specified end of September deadline.
