The Federal Reserve Board (the "FRB"), the FDIC, the OCC, the National Credit Union Administration and state financial regulators (collectively, the "Banking Agencies") provided guidance to examiners for assessing the "safety and soundness" of a financial institution during the COVID-19 pandemic.
In the interagency guidance, the Banking Agencies advised that when assigning supervisory ratings to financial institutions in accordance with the "Uniform Financial Institutions Rating System" (a/k/a "CAMELS") or the "Rating System for U.S. Branches and Agencies of Foreign Banking Organizations (a/k/a "ROCA"), examiners should assess:
the "reasonableness" of the management's response to COVID-19;
the management's risk assessment and mitigation, in light of the institution's size, complexity and risk profile; and
the management's effectiveness in addressing changes in the institution's business markets.
Where an institution is given a lower rating, the guidance indicates that examiners should consider the supervisory response, and determine (i) whether the institution's weaknesses are a result of the economic issues caused by the pandemic, or of management deficiencies; and (ii) the reasonableness of efforts by the institution to work with borrowers unable to meet payment obligations as a result of the pandemic.
In addition, the Banking Agencies stated that, when considering whether to pursue an enforcement action against an institution for failures related to the pandemic, the examiners should evaluate whether an institution's management has (i) "appropriately planned for financial resiliency and continuity of operations"; (ii) implemented "prudent policies"; and (iii) taken actions to remedy the specific failure(s).