Fed Will Scale Back Bank Exams Amid COVID-19 Crisis

By Jon Hill
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Law360 (March 24, 2020, 9:03 PM EDT) -- The Federal Reserve said Tuesday that it is temporarily dialing back its bank examination and inspection activities and will give banks more time to address issues flagged in past exams, moves the agency said are intended to help banks navigate the coronavirus pandemic.

In a statement, the central bank said it is shifting its supervisory approach in response to the public health emergency so that the banks under its supervision can make more efficient use of their resources as they try to keep credit flowing amid the upheaval of the pandemic.

As part of that effort, the Fed said it will largely stop routine exams for banks with less than $100 billion in total assets, while banks with more than that amount will see a "significant portion" of their exam activity postponed depending on how much work is involved and how critical that activity is.

"Any examination activities will be conducted off-site until normal operations are resumed at the bank and [Fed] reserve banks," the central bank said. "The Federal Reserve intends to reassess its approach to examinations in the last week of April to determine whether conditions have changed."

Banks will also get 90 more days to resolve any outstanding supervisory findings that are "noncritical," according to the Fed.

But large banks that are subject to the Fed's Comprehensive Capital Analysis and Review, or CCAR, stress tests won't get extra time to submit their capital plans for review. The April 6 deadline for those submissions still holds, the Fed said.

"The plans will be used to monitor how firms are managing their capital in the current environment, planning for contingencies and positioning themselves to continue lending to creditworthy households and businesses," the central bank said.

And in tandem with a reduced focus on bank exams, the Fed said it is putting increased focus on outreach and monitoring the risks facing banks, their customers and the broader financial system.

"For all firms, supervisors will focus on continued monitoring and analysis of operations, liquidity, capital, asset quality and impact on consumers," the Fed said. "For large financial institutions, supervisors will also focus on operational resiliency and potential impacts on broader financial stability."

The Fed also acknowledged the "unique and evolving" nature of the coronavirus emergency and pledged to keep an open line of communication with banks.

"The Federal Reserve recognizes that the current situation is significantly affecting regions of the country and institutions in different ways through no fault of their own and will work with financial institutions to understand the specific issues they are facing," the central bank said.

--Editing by Alanna Weissman.

For a reprint of this article, please contact reprints@law360.com.

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