Overview
Action Items
- Review our In-Depth: 10 Steps For Following Regulators’ COVID-19 Guidance.
- Review your loan documents.
- Prepare loan workout strategies for each troubled commercial borrower.
- Have your legal counsel review your proposed loan modification and forbearance agreements.
FDIC Announces Steps To Protect Banks/Consumers & To Continue Operations
Last week, federal and state banking regulators issued a joint statement encouraging banks to work with borrowers impacted by COVID-19 (coronavirus),1 and the Firm released Client Alert, Financial Institutions Urged To Work With Borrowers Impacted By Coronavirus. Since then, restaurants, schools, and businesses of all kinds have shut down across the country. And regulators, if they were not already clear on how banks need to respond, have doubled down on their message.
On March 16, 2020, the FDIC issued another press release titled FDIC Announces Steps to Protect Banks and Consumers and to Continue Operations.2 The FDIC is again encouraging banks to work with impacted borrowers and, to facilitate that, is encouraging banks to take advantage of the “discount window.”3
The discount window may help your short-term liquidity and allow you to have greater flexibility with borrowers impacted by COVID-19, but you’re going to have to pay those funds back. The question is: what steps you should take to maximize the likelihood that you get paid back from your borrowers? Barack Ferrazzano clients have already had troubled commercial borrowers point to these statements, as well as others from regulators and elected government officials, to seek treatment that may not constitute safe and sound lending practices.
Banks will see increasing requests for loan modifications and forbearance from commercial borrowers in the foreseeable future as the effects of COVID-19 adversely affect the U.S. economy.
10 Steps For Following Regulators’ COVID-19 Guidance
Click here to review each provision in more detail: in-depth-10-steps-for-following-regulators-covid19
Before entering into loan modifications and forbearance agreements with your commercial borrowers affected by coronavirus, we strongly recommend that banks include and evaluate the following provisions in their agreements, which we developed from our comprehensive team of transactional, litigation, and bankruptcy attorneys working with various troubled commercial borrowers on behalf of banks:
- Duration
- Access To Information
- Cross-Default
- Enforcement
- Reaffirmation
- Waiver Of Defenses
- Release In Favor Bank
- Choice Of Law, Choice of Venue & Jury Waivers
- Anti-Money Laundering
- Litigation Strategy For Key Loans
We Can Help You
Regulators expect banks to work with borrowers impacted by COVID-19 rather than strictly enforce loan obligations, and they are encouraging banks to use the discount window to make that happen. But banks must pay their loans back, must follow safe and sound banking practices, and maximize the likelihood of collecting from borrowers. This means critically reviewing loan modification and forbearance agreement and preparing to enforce loan obligations down the road — particularly for large critical loans.
We can help. Barack Ferrazzano attorneys can review your current form documents to ensure they contain necessary and proper provisions, help you secure and perfect collateral, help you document any loan modification and forbearance agreements, and for your most critical loans help you develop a broader strategy in the event of litigation.
COVID-19 Resources
We strongly recommend that banks evaluate the following pandemic-related business and legal considerations that we have been discussing with our clients in the following Client Alert:
- COVID-19 Insurance Coverage Considerations
- Webinar: Is Your Bank's Pandemic Contingency Plan Ready For Implementation?
- Financial Institutions Urged To Work With Borrowers Impacted By COVID-19
1https://www.fdic.gov/news/news/press/2020/pr20025.html
2https://www.fdic.gov/news/news/press/2020/pr20029.html
3https://www.fdic.gov/news/news/press/2020/pr20028.html
