The Federal Financial Institutions Examination Council (FFIEC) recently issued a joint statement, providing guidance to lenders on “work[ing] with borrowers in a safe and sound manner as loans near the end of accommodation periods.” This joint statement comes as many of the initial accommodations are set to expire soon.
The FFIEC principles are aimed at identifying and monitoring credit risks to lenders and mitigating financial losses for borrowers. Guidance in the joint statement includes the following:
- Lenders are expected to have appropriate systems to monitor and assess credit risks associated with individual loans that have accommodations.
- Lenders are expected to keep track of loans with accommodations, the types of accommodations provided, and the accommodations period.
- Additional accommodations should improve the sustainability and affordability of loans.
- Lenders should develop and implement accommodations with these objectives in mind, and ensure that they are adhered to within the company.
- Lenders should inform borrowers of additional accommodations in disclosures that are timely, accurate, and conspicuous.
- Lenders are to comply with generally accepted accounting principles and regulatory reporting instructions when determining credit losses, including allowances for loan and lease losses and allowances for credit losses.
- Lenders are responsible for maintaining prudent risk management practices that include appropriate internal control functions designed to ensure accommodations are accurately and consistently applied (this applies whether the relevant functions are outsourced or remain in-house).