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Lawmakers Say Banks Need Guidance on Virus-Related Workarounds

3/5/2020
Yahoo! News

(Bloomberg) -- U.S. lawmakers are pushing regulators to provide room for banks to work out loans with businesses and consumers who may be affected by the coronavirus.

Banks may need some “ability to work with the regulators so that if people look like they’re becoming more credit risky because of the virus, the banks aren’t treated badly for treating them fairly,” Senator Mark Warner, a Virginia Democrat and member of the Senate Banking Committee said in an interview.

The virus is affecting business decisions globally as sporting events and conferences are canceled, and airlines brace for declining passenger traffic as corporations pull back on travel. The number of cases is climbing in the U.S., while the death toll totals more than 3,300 worldwide.

Warner didn’t specify say which regulators he may be speaking with. But working with borrowers is a standard playbook option for bank regulators during temporary crises. During the government shutdown in 2019, both federal and state regulators urged financial institutions “to consider prudent efforts to modify terms on existing loans or extend new credit to help affected borrowers,” adding in a joint statement that work-out arrangements “should not be subject to examiner criticism.”

“It’s routine for the Fed to encourage financial institutions to meet the financial needs of their communities during past government shutdowns and natural disasters and we are currently considering the best way to do so in this situation,” Federal Reserve spokesman Eric Kollig said Thursday.

‘Nod From the Regulators’

Warner sits on the Senate Banking Committee, which has oversight authority over the Fed and other regulators.”I’ve urged the banks: Do the right thing. Let’s treat these people fairly,” he said. But “they may need some kind of nod from the regulators, and that’s what I’m hoping to help provide them.”

French Hill, an Arkansas Republican and member of the House Financial Services Committee with long experience in banking, is also supporting guidance by regulators.

“I support a well-crafted guidance memo from all the agencies via the FFIEC,” he told Bloomberg, referring to the Federal Financial Institutions Examination Council, a panel of bank regulators that coordinates on policies.

William English, a professor at the Yale School of Management and former division director at the Fed Board, said temporary measures to work with borrowers are effective for short-term cash crunches due to extraordinary circumstances.

“It is completely reasonable to try and work with your customers” to overcome temporary events. “But if the shock is really big, it becomes a fiscal issue,” he said, noting that it might require federal lending or support.