Prudent risk management and consumer protection principles for borrowers nearing the end of accommodation periods due to the impact of the coronavirus crisis were outlined in a joint statement issued Monday by federal and state financial institution regulators.
The statement from the Federal Financial Institutions Examination Council (FFIEC, which includes all federal financial institution regulators as well as the State Liaison Committee in its membership) also addresses issues relative to accounting and regulatory reporting, as well as internal control systems.
In explaining the statement, the exam council noted that the coronavirus crisis (which the council refers to as the “COVID event”) has had a “significant impact” on all corners of the economy and the financial system. It noted that the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted March 27, provided several forms of relief to businesses and borrowers. It notes that some states and localities have provided similar credit accommodations, and that many financial institutions have voluntarily offered other credit accommodations to their borrowers.
“The FFIEC members encourage financial institutions to consider prudent accommodation options that are based on an understanding of the credit risk of the borrower; are consistent with applicable laws and regulations; and, that can ease cash flow pressures on affected borrowers, improve their capacity to service debt, and facilitate a financial institution’s ability to collect on its loans,” the statement said. “Such arrangements may mitigate the long-term impact of a financial challenge on borrowers by avoiding delinquencies or other adverse consequences.”
The exam council added that imprudent practices can adversely affect borrowers and expose their financial institutions to increased credit, compliance, operational, and other risks — as well as threatening a financial institution’s capital.
Among the key topics addressed in the statement: prudent risk management practices; “well-structured” and sustainable accommodations; consumer protection; accounting and regulatory reporting; and internal control systems.