OCC Head Says Prolonged Lockdowns Risking Banks' Health

By Philip Rosenstein
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Law360 (June 1, 2020, 10:24 PM EDT) -- Extended stay-at-home orders are risking the stability of the financial system, the newly appointed head of the OCC told mayors in a Monday letter, highlighting compounding risks as the COVID-19 pandemic and recent civil unrest exacerbate economic uncertainty.

Acting Comptroller of the Currency Brian Brooks, who took the top job at the federal banking regulator on Friday, told the Conference of Mayors that lengthy stay-at-home orders could pose considerable risks to the health and stability of banks. Brooks pointed to the impact of enforced lockdowns on small business revenue, commercial real estate loans and risks of property damage as governors and mayors make decisions about how and when to lift lockdown orders.

"Your members should consider these risks carefully and weigh them against the scope and duration of continued lockdown orders in making your decisions, because certain aspects of these orders potentially threaten the stability and orderly functioning of the financial system the OCC is charged by law to protect," Brooks wrote.

The commercial real estate market has been notably impacted by the stay-at-home orders, as buildings and storefronts that serve as collateral for real estate loans face threats of property damage and looting given lengthy vacancies, the letter said. Further, fluid definitions for what constitutes an essential business and murky revenue outlooks for thousands of businesses are threatening the health of local and regional banks, Brooks wrote.

Brooks presented anecdotal evidence that some banks are facing loan delinquency rates for small businesses "in the mid-double-digits on loan books that reflected strong cash flow expectations and pristine credit quality at the time of origination." Delinquency rates this high could have widespread adverse effects on community and regional banks, Brooks said, adding that the impact of losing these types of banking services would disproportionately impact minority, elderly and low- and moderate-income communities.

"Failure to understand, forecast, and reserve for risks based on sound data deprives banks of a key financial risk management tool at a time when their safety and soundness depends on it," Brooks wrote.

Brooks further took aim at the requirements for wearing face masks, saying doing so could be a boon to bank robbers. He said that such requirements "create the very real risk of increases in bank robberies." Reports of "face-covering-related" bank robberies are evidence that broad orders to wear face masks "are not safe or sustainable on a permanent basis," he said.

Brooks took over at the OCC on Friday from Joseph Otting, who had been with the agency since late 2017. Brooks joined the agency earlier this year after a stint as chief legal officer at the cryptocurrency exchange Coinbase, and brings with him plenty of experience with government affairs and more traditional segments of finance, having previously run the legal departments for Fannie Mae and OneWest Bank, where he overlapped with Otting.

Before that, Brooks was a managing partner of O'Melveny & Myers LLP's Washington, D.C., office and chaired the firm's national financial services practice group.

The OCC reiterated its offer to work with local officials to address concerns Brooks raised, but declined to comment further on the letter. The Conference of Mayors did not respond to a request for comment. The Conference of State Bank Supervisors did not have a comment on Brooks' letter.

--Additional reporting by Jon Hill. Editing by Emily Kokoll.

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

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