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How will examiners assess safety and soundness given the stresses caused by COVID-19?

On June 23, 2020, state bank and credit union regulators, together with the FDIC, FRB, OCC, and NCUA, issued examiner guidance to promote consistency and flexibility in the supervision and examination of financial institutions affected by the COVID-19 pandemic. The interagency guidance acknowledges that stresses caused by COVID-19 can adversely impact an institution’s financial condition and operational capabilities, even when institution management has appropriate governance and risk management systems in place to identify, monitor, and control risk. Examiners will consider the unique, evolving, and potentially long-term nature of the issues confronting institutions and exercise appropriate flexibility in their supervisory response.

The agencies will continue to assess institutions in accordance with existing policies and procedures, and may provide supervisory corrective actions and recommendations, or downgrade an institution’s composite or component ratings, when conditions have deteriorated. Examiners will consider whether bank management has managed risk appropriately, including taking appropriate actions in response to stresses caused by COVID-19. Examiners will assess an institution’s risk identification and reporting processes given the level of information available and the stage of the local economic recovery.

Interagency Examiner Guidance for Assessing Safety and Soundness Considering the Effect of the COVID-19 Pandemic on Financial Institutions