With a spreading coronavirus, cratering stock market, and new fears about a global recession emerging as background Monday, regulators began applying updated guidance that financial institutions should follow to minimize potential adverse effects of a pandemic.
The Federal Financial Institutions Examination Council (FFIEC), the umbrella group of the federal financial institution regulators which coordinates supervision of financial institutions, issued the updated guidance on Friday. In a release, the FFIEC advised that “regulated institutions should periodically review related risk management plans, including continuity plans, to ensure their ability to continue to deliver their products and services in a wide range of scenarios and with minimal disruption.”
The exam council guidance identifies actions financial institutions should take to minimize the potential adverse effects of a pandemic. Specifically, the council said, institutions’ business continuity plans (BCPs) should address pandemics and provide for a preventive program, a documented strategy scaled to the stages of a pandemic outbreak, a comprehensive framework to ensure the continuance of critical operations, a testing program, and an oversight program to ensure that the plan is reviewed and updated.
“The pandemic segment of the BCP must be sufficiently flexible to address a wide range of possible effects that could result from a pandemic, and also be reflective of the institution’s size, complexity, and business activities,” the council stated.
The guidance offers a somewhat ominous tone, noting that – unlike natural disasters or malicious acts (such as a terrorist attack) – a pandemic’s effect is more difficult to determine because of the anticipated difference in scale and duration.
“The nature of the global economy virtually ensures that the effects of a pandemic event will be widespread and threaten not just a limited geographical region or area, but potentially every continent,” the FFIEC noted.
The FFIEC guidance was prescient in its approach: Monday morning, in response to rising incidence globally and in the U.S. of the virus and the impact on commerce (as well as uncertainty about oil prices), stock markets opened the day with plunging prices. The Standard & Poor’s (S&P) 500 recorded a 7% drop in value, triggering an automatic trading halt for 15 minutes. By mid-morning Eastern time, the cratering continued but had eased up slightly (at just over a 5% decline in value).