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Client Alert: Regulators Encourage Banks To Continue To Work With Borrowers

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Is Your Bank Ready For The Next Loan Deferral Wave?

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Regulators Encourage Banks To Continue To Work With Borrowers – Is Your Bank Ready For The Next Loan Deferral Wave?

On August 3, 2020, federal and state banking regulators issued a joint statement titled Joint Statement on Additional Loan Accommodations Related to COVID-19. A link to the release can be found here:

In March, federal and state regulators encouraged banks to accommodate their commercial and consumer borrowers during the initial impact of the COVID-19 pandemic by extending short-term deferrals and other loan modifications (see our Client Alert on the subject here: Now, as these initial deferral periods are ending, federal and state regulators have released additional guidance, suggesting banks should “consider prudent accommodation options” to borrowers impacted by COVID-19, that places additional burdens on banks. For example, the regulators are suggesting that banks should do the following prudently and in a safe and sound manner:

Given the tension between the regulators’ directive to accommodate borrowers, while mandating doing so in a safe and sound manner, you should consider the following when reviewing any borrower request for a further deferral or loan modification:

By considering these steps now and implementing them as appropriate, your bank will minimize any potential negative impacts arising from the ongoing pandemic. Indeed, taking these steps now will prepare your bank to address regulators’ expectations of balancing the needs of borrowers while keeping your bank safe and sound and preparing for your next examination.

We Can Help You

We can assist you with your lending policies. We can also supplement and support the bank’s internal review of deferred loans, by reviewing loan files to ensure that they contain necessary and proper documentation, that your collateral is secured and properly perfected, and that an appropriate legal strategy is in place before the situation further deteriorates. Our legal advice and regulatory know-how can help ensure that your bank vigilantly and prudently addresses its troubled loan assets in light of current events. Finally, we can help your bank develop strategies for addressing all of these issues before and during your next examination.

COVID-19 Resources

We recommend you evaluate the following pandemic-related business and legal considerations that we have been discussing with our clients:


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