NCUA, Banking Regulators Pledge Sensitivity to Pandemic Issues in Examinations

Federal and state banking regulators, including the National Credit Union Administration, pledged Tuesday to consider the impact that the coronavirus pandemic has had on financial institutions, as they conduct examinations of banks and credit unions.

In a joint statement, the regulators generally acknowledged that the pandemic has created problems at financial institutions that, under normal circumstances, would result in a bank or credit union being sanctioned.

“When rating an institution’s management, examiners will distinguish between problems caused by the institution’s management and those caused by external factors beyond management’s control,” they said.

The regulators said that to promote consistency and transparency across the regulating agencies, examiners will continue to assign supervisory ratings to institutions—for credit unions, that rating would be a CAMEL rating.

They said that the COVID-19 pandemic would likely “adversely impact” an institution’s financial condition even when a bank or credit union has appropriate safeguards in place. The new policy guidance is meant to take that into account.

Among other things, the policy guidance states that examiners will consider whether banks or credit unions have:

  • Addressed how to deal with the financial issues created by the pandemic in their long-term business strategy.
  • Worked with borrowers who may not be able to meet their financial obligations as a result of the pandemic.
  • Created loan modification programs that can help mitigate problems for borrowers.

“Examiners will not criticize institutions for working with borrowers as part of a risk mitigation strategy intended to improve existing loans, even if the restructured loans have or develop weaknesses that ultimately result in adverse credit classification,” the agencies said.

Related:

Complete Document: Interagency Examiner Guidance for Assessing Safety and Soundness Considering the Effect of the COVID-19 Pandemic on Institutions

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