DATE: June 23, 2020
TO: Chief Executive Officer
FROM: Candace Franks, Bank Commissioner
SUBJECT: Interagency Guidance – Effect of COVID -19 Pandemic on Institutions
The attached interagency guidance
was developed for state and federal examiners. As the country starts to reopen after the pandemic lockdowns, examiners will be contacting institutions about the next examination. While the interagency guidance discusses what examiners will be doing, I wanted to provide some additional detail on our expectations of financial institutions and the interactions with examiners.
The Examiner-In-Charge (EIC) of each examination (commercial, IS, Trust) will work to contact the institution well in advance of the start date in order to ascertain any potential issues or conflicts due to the pandemic. Specifically, please share with the EIC any concerns or requests which will more effectively facilitate the examination due to this change in examination processes.
For the time being, the State Bank Department will continue to conduct examinations in an offsite capacity. Our staff, including examination staff, is working from their respective Bank Department offices. On a case-by-case basis, we will work with each institution that does not have digital loan files to develop a plan in order to facilitate the loan analysis portion of the commercial examination. The examination process may take longer than usual due to the offsite work and the opportunity to coordinate and implement the necessary tasks to complete the examination. We will undertake this process with a focus on minimizing regulatory burden given this challenging environment.
Risk scoping will help examiners determine how to use your time (and theirs) most efficiently. The examiners will attempt to make the process as smooth as possible. If the institution’s loan files are digital, extra steps may be necessary to provide examiners with access. The process for granting that access needs to be discussed with the examiners. Examiners will review the same type of information as always and will need to schedule calls or video calls with bank personnel. These discussions provide the examiners with valuable information and remain a vital part of every examination.
Examiners will evaluate how well the institution has identified and managed risks arising from the pandemic. Changes in strategy, personnel, operations, and outlook should be highlighted. The institution’s capital levels must also be considered given losses or potential losses from the pandemic. If capital shortfalls are possible, the bank’s capital plan should establish how the institution’s capital levels will be augmented.
Examiners will also review and discuss how the institution took advantage of the government programs and regulatory relief issuances. For example, if the institution took advantage of the 120 day delay in securing real estate appraisals or evaluations the bank should be able to elaborate on how that relief was used and if it presents the institution with follow-up concerns such as dealing with a backlog of appraisals. The examiners will also discuss how the local economic recovery is progressing and any additional challenges that presents. As always, credit concentrations will be evaluated and addressed, no matter if they are long-standing or newly emerging from the pandemic. Management’s plans for those credit concentrations will also be reviewed by the examiners.
We recognize the significant impact the COVID-19 Pandemic has had on the financial sector in general and your institution directly. Your families, employees, and community are all going to continue to need your undivided attention. During these unprecedented times you will be fully engaged in institution operations, employees return to work, and customers’ needs. Working together we hope that the examination process can be an important catalyst towards a more normal situation.
Please contact me, or any of our supervisory staff, at 501-324-9019 if you have any questions about the examination process going forward or if we can assist you and your institution, in any way, during this pandemic.
Candace A. Franks