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Interagency Guidance for Financial Institutions on Coronavirus Disease-Related Loan Modifications

On Sunday night, March 22, 2020, the federal banking agencies (OCC, FDIC, NCUA, Federal Reserve), the Consumer Financial Protection Bureau and the State Conference of Bank Supervisors issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.

The Guidance does two key things:

1. Short-term loan modifications granted to borrowers that have become financially distressed as a result of economic conditions created by COVID-19 will not result in a loan being classified a troubled debt restructuring (TDR). According to U.S. GAAP, a restructuring of a loan or other credit constitutes a TDR if the lender/creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.

The banking agencies have confirmed with staff of the Financial Accounting Standards Board that short-term (e.g., six months or less) loan modifications made on a good faith basis in response to COVID-19 for borrowers who were current prior to any relief, are not TDRs. Modification actions can include payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

2. Furthermore, bank regulators will not criticize bankers for granting short-term loan modification relief, as long as the action taken is done in good faith. The explicit statement in the Guidance that bankers will not be criticized by their regulators removes a significant impediment to bankers providing short-term loan modification relief – an impediment that chilled bankers in the months and years following the 2008/2009 Financial Crisis from providing such relief.

See The Interagency Guidance.

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About this Author

Carl Fornaris, Greenberg Traurig Law Firm, Miami and Washington DC, Finance and Corporate Law Attorney
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Carl A. Fornaris is an attorney in firm's Financial Regulatory and Compliance Practice. With 24 years of legal experience, Carl advises banks and their holding companies, investment advisers, securities broker dealers, gaming firms, money services businesses and other financial institutions on all aspects of their business. These include  licensing, capital-raising transactions, acquisitions and divestitures, USA PATRIOT Act/BSA/AML compliance and OFAC sanctions programs (including permissible financial activities in Cuba), critical examination reports and enforcement...

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