FED NOTES: Originally published in the Summer 2020 edition of Bank Owner magazine.
By Ashley Brendemuhl
The COVID-19 pandemic has affected financial institutions and their local economies in many challenging ways. Supervision staff at the Federal Reserve Bank of Minneapolis are focused on understanding these challenges and are conducting frequent outreach by surveying State Member Banks (SMBs) to monitor and better understand the current environment. Themes emerging from these surveys and related discussions are highlighted in more detail below, along with available resources and guidance from the Federal Reserve System.
With adoption of social distancing to help slow the spread of COVID-19, one of the more visible ways that financial institutions responded was branch and lobby closures. In mid-March, the Reserve Bank began receiving notifications from financial institutions that were reducing access or closing lobbies to customers. These changes were communicated to customers by signs posted on entrances, banners on bank homepages, announcements on social media platforms, and direct mailings to customers. Signage and online communications directed customers to alternative ways to conduct bank business. A majority of institutions directed customers to use drive-through lanes at branches to complete banking transactions, obtain signatures, or drop off necessary paperwork. Many financial institutions also encouraged use of their digital and mobile banking platforms for quick and convenient access to accounts. For business that needed to be conducted in person, financial institutions were open by appointment, while practicing safe social distancing measures within (and outside of) the bank. Many of these institutions also limited their hours to facilitate alternative staffing arrangements. Where possible, institutions implemented “work from home” for many employees. Others established rotations or teams that would take weekly/biweekly shifts at the bank, ensuring that adequate numbers of staff were available in case an employee became ill or quarantine was necessary.
Despite operational challenges, all bankers have remained committed to serving their communities by working to meet their customers’ needs. Bankers have been working with individual borrowers who contacted them in order to accommodate their particular situations or circumstances. Loan modifications were frequently cited as a relief measure for those with existing lending relationships who may be experiencing financial hardship due to COVID-19. Examples of these modifications include deferred or skipped payments, interest-only payments, payment reductions, lower interest rates, and extended maturities. Bank employees have also spent a significant amount of time and energy submitting applications, on behalf of existing (and in some cases, new) small business customers, for the Small Business Administration’s Paycheck Protection Program. This program provides loans to help small businesses keep their workforce employed during the coronavirus crisis. More information about this program is available on the SBA’s website, and eligible financial institutions originating these loans may find resources on the Federal Reserve’s PPP Lending Facility (PPPLF) to be useful as well.
As state and local economies begin to reopen, so too are these financial institutions and branch lobbies. Consistent with guidance from the Centers for Disease Control and Prevention, a number of measures are being put into place in an effort to continue keeping customers and bank employees safe. Some examples shared with supervision staff include installation of Plexiglas panels at teller stations, floor markers that indicate appropriate distancing, removal of waiting area chairs and complimentary coffee, availability of hand sanitizer in bank and branch lobbies, mask requirements or recommendations for bank employees and customers who enter the lobby, the rearrangement of desks, and even allowing customers to keep the pen they have used to sign bank documents. Most financial institutions have indicated they adjusted well to operating under modified conditions during the past few months.
Many are not rushing to be among the first businesses to reopen within their communities and are cautiously evaluating their reopening plans.
The pandemic has led to instability in the economy and has affected a number of industries across the country and within our financial institutions’ local communities. Ninth District bankers have expressed concerns regarding industries such as agriculture, tourism and hospitality, bars and restaurants, hotels, and rentals, as well as entertainment. As a result, more cautious and conservative lending practices are beginning to emerge. Bankers have been asking more questions and are evaluating borrowers more closely through, for example, more detailed reviews of repayment sources. Existing loan portfolios have also been the focus of increased monitoring. Bankers are considering what their local economies will look like in the coming months and are thinking about how long the effects of the COVID-19 pandemic will last.
As this public health crisis unfolds, the Federal Reserve’s website offers resources to assist financial institutions in their continued support of customers and local economies. The COVID-19 Response page provides a number of types of resources, including the following:
• Federal Reserve statements, guidance, and rules to support financial institutions and the economy
• Details of the Federal Reserve’s Funding, Credit, Liquidity, and Loan facilities
• General and Supervisory and Regulatory frequently asked questions
Included in these resources are several Supervision and Regulation Letters that the Federal Reserve has issued to provide guidance regarding significant matters related to the Federal Reserve System’s supervisory responsibilities.
• SR 20-4 / CA 20-3: Work with Borrowers
• SR 20-6: Essential Workers
• SR 20-7 / CA 20-5: Small-Dollar Loans
• SR 20-9: CECL and CARES Act
• SR 20-10: CARES Act
The Ask the Fed program also is available to officials of member banks and to other insured depository institutions, bank and thrift holding companies, state bank commissioners, and state banking associations. Periodic “Ask the Fed” webinars, featuring Federal Reserve experts and guest speakers, cover the latest financial and regulatory developments. Recent sessions, which are recorded and available for viewing, have covered the Main Street Lending Program, updates for PPPLF participants, and loan modifications and reporting for financial institutions with customers affected by the coronavirus.
We encourage firms to contact Mergers & Acquisitions or Safety and Soundness staff at your Federal Reserve Bank for additional information if you have questions about the Federal Reserve’s actions in response to COVID-19.
Ashley Brendemuhl is a Financial Analyst at the Federal Reserve Bank of Minneapolis.